TIDMPTEC
RNS Number : 6177X
Playtech PLC
23 February 2017
Playtech plc
("Playtech," or the "Company," or the "Group")
Results for the year ended 31 December 2016
Executing on strategy:
strong operational and financial performance, strategic M&A
and shareholder returns
Playtech (LSE: PTEC) today announces its results for the year
ended 31 December 2016, together with a trading update for the
period to 20 February 2017.
Financial summary
2016 2015 Change Change
(reported) (const.
currency)(3)
-------------------- ----------- ---------- -------------------------- --------------
Revenues EUR708.6m EUR630.1m +12% +20%
Adjusted EBITDA(1) EUR302.2m EUR251.9m +20% +32%
Adjusted Net
Profit(2) EUR206.2m EUR205.9m Flat +42%
Reported Net
Profit(3) EUR193.0m EUR135.8m +42% +112%
Adjusted diluted
EPS(4) 59.8 EURc 61.8 EURc -3% +37%
Total dividend
per share 32.7 EURc 28.5 EURc +15% NA
Group financial highlights
-- Total revenues up 12% vs 2015 on a reported
basis:
* 20% revenue growth at constant currency
* 13% revenue growth excluding acquisitions and at
constant currency
* 48% of group revenues are regulated (2015: 47%)
-- Adjusted EBITDA up 20% on a reported basis
and 32% at constant currency
-- Adjusted group EBITDA margin of 42.7% (2015:
40.0%)
-- Adjusted Net Profit and Adjusted diluted
EPS at constant currency up 42% and 37%
respectively
-- Improved cash conversion of 94% (2015:
80%) with DSOs(5) down 23 days from H1
2016
-- Gross cash at period end of EUR545 million
(EUR469 million adjusted for CFH customer
deposits) taking into account:
* EUR240 million spent on acquisitions including BGT,
CFH, Quickspin and ECM in 2016
* returning EUR296 million to shareholders in 2016
including EUR150m special dividend and EUR50m via a
share buybac
-- Full year dividend per share up 15% in
accordance with progressive dividend policy
adopted in 2016
Operational highlights
Gaming division
-- Strong revenue performance with 21% growth
at constant currency led by flagship Casino
offering
-- Strong performance in Sports in H2 2016 following
acquisition of BGT
-- Regulated Gaming revenues of 42% (2015: 41%)
-- Software revenues from mobile of 33% in 2016
(2015: 21%), with 54% of UK revenues from
mobile
-- "Locking-in" future growth
* over 10 new customers signed in 2016 including
Pokerstars, MaxBet and Mr Green with OPAP after the
period end
* significant contracts renewed, including with Paddy
Power Betfair, William Hill, Rank and Betfred in 2017
* nine of top 10 licensees now on long-term contracts
-- Launched Playtech BGT Sports presenting significant
opportunity across Europe and South America
-- Acquisitions integrated and performing in
line with expectations
-- Pipeline of new licensees and new structured
agreements remains strong
Financials division
-- Revenue of EUR65.6 million (2015: EUR60
million) in 2016 with Adjusted EBITDA of
EUR15.4 million (2015: EUR 15.9 million)
-- 2016 results reflect full impact of the
business transition
-- Encouraging performance and improved KPIs
in H2 2016
-- B2B offering strengthened by acquisition
of CFH in November 2016
-- Ron Hoffman has become full time CEO of
the Financials division
Current trading and outlook
-- Average daily revenue in the Gaming division
for the first 51 days of Q1 2017 was up
26% on Q1 2016 (30% at constant currency)
and up 10% on Q4 2016 (9% at constant currency)
-- Excluding acquisitions, average daily revenue
in the Gaming division for the first 52
days of Q1 2017 was up 9% on Q1 2016 (12%
at constant currency) and up 10% on Q4
2016 (up 9% at constant currency)
-- The Financials division has performed in
line with expectations in 2017 to date
* Markets.com KPIs continue to be encouraging against a
backdrop of low volatility
* CFH continues to perform well with B2B volumes in
line with expectations
-- Management remains confident of a strong
performance in 2017 driven by both organic
growth and the acquisitions made in 2016
Alan Jackson, Chairman of Playtech, commented:
"Playtech has continued to successfully execute its strategy for
strong operational and financial performance, strategic M&A and
shareholder returns.
"The Gaming division once again delivered very strong growth.
Sports saw a good second half performance following the acquisition
of BGT with the newly formed Playtech BGT Sports bringing together
all aspects of the Playtech's sports offering creating a fully
integrated, best-in-class sports betting technology. 2016 also saw
the signing of more than ten new customers with ten new customer
go-lives. 9 of out of 10 top customers are now on long-term
contracts with Paddy Power Betfair, William Hill, Rank and Betfred
all renewing in the past few months.
"Following the transitioning of the Financials division in the
first half of the year, the second half performance was encouraging
with improved KPIs. The second half also saw the acquisition of
CFH, enhancing Playtech's position as it continues to build a B2B
financials offering within its Financials division.
"The year was a strong year for M&A with EUR240 million
spent on acquisitions including BGT, CFH, Quickspin and ECM. In
addition to this, reflecting the strength of Playtech's cashflows
and flexibility of its balance sheet, EUR296 million was returned
to shareholder including a EUR150 million special dividend and
EUR50 million through a share buyback, with no impact on its
M&A capabilities. In accordance with the new progressive
dividend policy adopted in 2016, the full year 2016 dividend has
been increased by 15%.
"Management remains confident of a strong performance in 2017
and beyond."
- Ends -
(1) Adjusted numbers relate to certain non-cash and one-off
items including amortisation of intangibles on acquisitions,
professional costs on acquisitions, finance costs on acquisitions
and additional various non-cash charges. The Directors believe that
the adjusted profit measures represent more closely the consistent
trading performance of the business. A full reconciliation between
the actual and adjusted results is provided in Note 5
(2) Attributable to the owners
(3) Constant currency numbers exclude the exchange rate impact
on the results by using previous period relevant exchange rate and
also exclude the total cost/income of exchange rate differences
recognised in the period
(4) Weighted average number of shares used in diluted EPS for
the twelve months ended 31 December 2015 were adjusted reflect the
impact of the convertible bonds
(5) Days sales outstanding
Presentation and live webcast
A presentation for analysts and investors will be held today at
9.00 am in the offices of Berenberg, 60 Threadneedle Street,
London, EC2R 8HP.
The presentation will be webcast live and on-demand at the
following website:
http://www.investis-live.com/playtech/587cdf638c507710003e003d/tr2t
The presentation will also be accessible via a live conference
call:
Dial-in no: +44 (0)20 3059 8125
Conference password: Playtech
There will also be a replay available for one week:
Dial-in no for UK and other locations: +44 (0)121 260 4861
Dial-in no for US: 1 844 2308 058
Conference reference number: 5100245#
For further information contact:
Playtech plc
Mor Weizer, Chief Executive
Officer
Andrew Smith, Chief +44 (0)20 3772 2500
Financial Officer
c/o Bell Pottinger
James Newman, Head of
Investor Relations +44 (0)1624 645954
Bell Pottinger
David Rydell, Jonathan
Hodgkinson, Laura Jacques,
Ariella Levine +44 (0)20 3772 2500
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
Forward looking statements
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". By their nature,
forward-looking statements involve risk and uncertainty since they
relate to future events and circumstances. Actual results may, and
often do, differ materially from any forward-looking
statements.
Any forward-looking statements in this announcement reflect
Playtech's view with respect to future events as at the date of
this announcement. Save as required by law or by the Listing Rules
of the UK Listing Authority, Playtech undertakes no obligation to
publicly revise any forward-looking statements in this announcement
following any change in its expectations or to reflect events or
circumstances after the date of this announcement.
About Playtech
Playtech is a market leader in the gambling and financial
trading industries. Founded in 1999 and listed on the Main Market
of the London Stock Exchange (LEI code: 21380068TTB6Z9ZEU548),
Playtech has more than 5,000 employees in 17 countries.
Playtech is the gambling industry's leading software and
services supplier with more than 130 licensees globally, including
many of the world's leading regulated online, retail and mobile
operators, land-based casino groups, government sponsored entities
such as lotteries, and new entrants opening operations in
newly-regulated markets. Its business intelligence-driven gambling
software offering includes casino, live casino, bingo, poker and
sports betting.
It is the pioneer of omni-channel gambling which, through
Playtech ONE, offers operators and their customers, a seamless,
anytime, anywhere experience across any product, any channel
(online, mobile, retail) and any device using a single account and
single wallet. It provides marketing expertise, sophisticated CRM
solutions and other services for operators seeking a full turnkey
solution. Playtech's Financials division operates both on a B2C and
B2B basis. Its B2C focused offering is an established and growing
online CFDs broker, operating the brand markets.com. Its B2B
offering includes the division's proprietary trading platform, CRM
and back-office systems, as well as its liquidity technology
platform which provides retail brokers with multi-asset execution,
prime brokerage services, liquidity and complementary risk
management tools.
Chairman's statement
I am pleased to report that during 2016 Playtech continued to
successfully execute its strategy with a strong operational and
financial performance, delivering important M&A and significant
capital returned to shareholders.
The Gaming division continued to deliver, with exceptional
growth in the flagship Casino offering driven by the largest
portfolio of games boasting some of the most popular content across
the industry. Sports saw a good second half performance following
the acquisition of BGT, and later in the year with the newly formed
Playtech BGT Sports bringing together all aspects of Playtech's
sports offering creating the only true omni channel, best-in-class
sports betting technology. Playtech will always remain a customer
focused business and 2016 saw the signing of more than ten new
customers with ten new customer go-lives. The trend of securing
longer term agreements with key customers continued with nine out
of ten now on long-term contracts following the renewals with Paddy
Power Betfair, William Hill, Betfred and Rank all renewing in the
first two months of 2017 alone.
The Financials division went through a significant transition in
the first half of the year with an encouraging performance
delivered in the second half. Towards the end of the year the Group
acquired CFH, enhancing Playtech's position as it continues to
build a B2B offering within its Financials division.
Playtech spent a total of EUR240 million on acquisitions during
the full year. At the beginning of 2016 Playtech outlined its
intention to utilise the capital raised from shareholders to
maintain its market leading position by acquiring complimentary
technologies and premium content. The acquisitions of BGT,
Quickspin and ECM will augment organic growth in the Gaming
division in 2017, whilst the acquisition of CFH was a landmark
transaction for the Financials division. The acquisition of Eyecon
in February 2017 demonstrates Playtech's continued focus on value
enhancing M&A.
The strength of Playtech's cashflows and the flexibility of its
balance sheet enabled the Company to return EUR296 million to
shareholders in 2016 including a EUR150m special dividend announced
at the time of the half-year results and a EUR50 million share
buyback programme before the year end. Strong cash generation
continues to be a key characteristic of the Group and the high
levels of shareholder returns had no impact on the Group's
acquisition capabilities. In accordance with the new progressive
dividend policy adopted in 2016, the 2016 full year dividend has
been increased by 15% taking the total full year increase to
15%.
Finally, the Board was delighted to announce the appointment of
Andrew Smith as Chief Financial Officer following the period end.
Andrew replaced Ron Hoffman who became full time CEO of the
Financials division. The move has provided a greater depth of
management resource and focus on Playtech's Financials division
following the acquisitions of Markets Limited and CFH. In addition,
the Board was further strengthened in 2016 by the appointment of
Claire Milne as a non-executive independent director in July.
Claire joined the Board as a recognised industry expert in eGaming
and technology law and regulation, with 20 years' experience
advising gaming and financial services clients as both an in-house
and private practice lawyer. Claire was the Chair of the Isle of
Man Gambling Commission with Playtech already seeing the benefits
of her depth of expertise.
Given the progress outlined above and Playtech's proven ability
to achieve its strategic objectives and drive operational
performance, the Board remains confident of a strong performance in
2017 and beyond.
Chief Executive's review
Overview: executing on our strategy
I am proud to report that 2016 saw Playtech deliver on its
operational and strategic objectives.
The double-digit growth reported in the Gaming division at the
half year has continued into the second half including the
announcement of new licensees, new content and features for
customers and important long term renewals. The repositioning of
our Financials division also produced an encouraging performance in
the second half of the year.
Playtech has continued to successfully execute its strategy of
acquiring complementary businesses, including enhancing our
omni-channel offering and adding further premium content, with the
acquisitions of BGT, Quickspin and ECM. In addition, the
acquisition of Eyecon post the period end further strengthens
Playtech's position and extending its reach into new areas. The
acquisition of CFH in November significantly enhanced Playtech's
B2B offering in the Financials division.
Our balance sheet strength and continued substantial cash
generation enabled us to execute the two cornerstones of our
strategy, firstly to continue the programme of strategic
acquisitions to further strengthen our market leading position, and
secondly to focus on shareholder returns by returning EUR150
million through a special dividend and launch a EUR50 million share
buyback programme in 2016. This commitment was underlined by the
move to a progressive dividend policy to provide shareholders with
more certainty and consistency of dividend payments.
Gaming division
Overview
The Gaming division delivered another strong year achieving 21%
reported revenue growth at constant currency, with a good
contribution from existing and new customers.
Licensees
I am pleased to report that operationally Playtech had a strong
2016 from an operational perspective, achieving one of our key
strategic objectives of "locking-in" future growth for the
business.
This year saw the launch of several important customers
including Pokerstars, Sun Bingo, Mr Green, Maxbet, Win2day and
Victor Chandler with further significant new licensees signed in
2016 including Fortuna and others still to launch. In total, more
than 10 new licensees launched in the year with a number of
relationships already secured and expected to go-lives in 2017.
The strength of Playtech's offering and commitment to its
licensees is clearly evidence by the length of its relationships
with its customers. Many important agreements were renewed in 2016
and the beginning of 2017 with 9 out of Playtech's top 10 licensees
now on long-term contracts, including Paddy Power Betfair, William
Hill, Rank and Betfred.
While we have been successful in extending relationships into
new verticals and new geographies, due to regulatory changes in
Europe, Latin America and elsewhere, we are seeing a fundamental
change in the type of licensees we do business with. Given our
experience of regulated and newly regulated markets, Playtech is
seeing an increase in early stage customers in new or emerging
regulatory regimes. Over a short period, as the new regulatory
framework is being introduced, these operators become amongst the
largest and best performing online operators in the new
markets.
As most retail gaming operators lack the operational
capabilities required to successfully operate an online gaming arm
they seek a strong technology partner. In many cases, they often
also lack the digital infrastructure to support their retail arm,
and through its unique omni-channel solution, Playtech is the
obvious choice to provide better CRM, technology, premium products
and a best of breed operational skills, expertise and capabilities.
Accordingly, Playtech remains focused on regulated and newly
regulated jurisdictions. Our pipeline of new licensees and
structured agreements remains strong, driven by newly-regulated and
soon-to-be-regulated markets. We have relationships with the
leading retail gaming operators in every commercially viable
jurisdiction and expect the regulatory shift identified several
years ago, to continue being the Company's largest growth
opportunity.
Customer Concentration
As outlined at the half year results, in future we will be
presenting customer concentration on a new basis to more accurately
reflect the reality of how we operate.
Historically we have presented our largest licensee as a single
customer. However, this licensee is a licensed distributor for many
smaller licensees who sit beneath the distributor. The aggregator
model is common in Asia and used by different B2B and services
providers. Playtech has always used licensed distributors and local
companies to establish itself across the region given the
importance of understanding the culture and the importance of
having the right partner - not just any partner.
This model serves us well as it provides us with access to local
gaming specialists who truly understand the culture, the key people
and the most relevant potential operators. They ensure that all
operators go through a strict due diligence processes and that they
maintain all relevant permits and licenses as well as serve them
locally by using local personnel who share the same languages and
culture.
Following the reclassification at the half year the revenue from
our top five licensees stood at 36% compared to 42% at the 2015
year end. The trend of diversification in our customer base
continued from the previous year at all levels, with the top 15
licensees accounting for 66% of revenues, down from 73% at the 2015
year end.
Regulated Markets
Our focus remains on regulated markets which represent the
future of our ever-evolving industry. During the period we
continued to strengthen our position and extend our reach in
regulated markets by supporting the organic growth of our customers
in the UK, Italy, Spain, Denmark and Finland. Additionally, we
established our presence in newly-regulated markets such as Mexico,
Bulgaria and Romania working with existing and new retail gaming
companies.
Regulated revenues in the Gaming division grew both in absolute
terms and as a percentage of total revenues despite strong growth
in soon and yet to be regulated markets and a weaker Sterling.
Looking forward to 2017, we will see the percentage of revenues
from regulated markets further improve. This will be predominately
driven by the continued growth of our licenses in regulated
markets, as operators reallocate their marketing budgets and focus
on regulated and soon to be regulated markets, and also within
Playtech we will see the full year impact from Sun Bingo, BGT, ECM
and Eyecon.
The strong momentum that we experienced in recent years is
expected to continue as Playtech benefits from the growth of its
customers and signs new licensees in regulated markets. In
addition, a significant number of countries are well advanced in
their legislation processes across Europe, Latin America and
elsewhere while other important markets are considering regulating
in the coming future.
Playtech ONE: omni-channel offering
Playtech ONE is the industry's only true integrated omni-channel
offering. Playtech ONE allows operators to develop a seamless
inclusive approach to channels, products and platforms. A true,
commercial omni-channel offering is not just an integrated solution
connecting products or games delivered to customers or the same
games offered across different channels. Instead, omni-channel is a
comprehensive solution that shares the same infrastructure and CRM
(through Playtech's IMS) across retail, web and mobile
environments, allowing a seamless journey between the different
channels, products and platforms as well as cross platform
functionality improving the offering to players and creating an
eco-system that incentivises the players to remain loyal to the
operators. The one CRM and infrastructure provides operators with a
single view across all customer activity and allows them to tailor
promotions and bonuses across channels and verticals. It also
provides operators with the ability to deliver a fully personalised
offering and successfully target players through cross-product
marketing.
Our proven track record of working with operators in regulated
markets demonstrates that there is an overlap in the demographics
of retail and online, that traditional retail customers playing
online are more valuable; and that the acquisition costs associated
with such players are far lower when compared to direct acquisition
channels. A number of operators have been pre-occupied in recent
years with the digitalisation of retail, concentrating on taking
retail online, in reality retail and online form part of one
experience and channel for customers. Accordingly, we believe that
an omni-channel solution will inevitably be implemented by most
retail businesses that have or intend to launch an online gaming
arm.
We truly believe that the convergence between retail and online
is inevitable due to the combination of two factors - the fact that
a large number of retail gaming businesses still operate legacy
systems that do not fit players demand and more than ever
understand the importance of digitising their retail
infrastructure. In addition, the significant opportunity in the
online space capitalising the investments made into the brand that
usually comes with better cash conversion due to lower capex and
opex investments and better margins.
Mobile
Across all verticals mobile continues to be a key driver of
increased player activity with revenues from mobile accounting for
33% of overall software revenues, an increase of 50% on the same
period last year.
Importantly Playtech saw an 80% increase in Gaming mobile
penetration during the year. With increases across all verticals
except for Sports, with the Sports figure affected by the
previously disclosed loss of certain Mobenga contracts and the
inclusion of BGT in the second half. Unsurprisingly given the
maturity of the UK gaming market and the quality of its mobile
networks, there still exists a material difference between the UK
and the rest of the world, with mobile accounting for 54% of UK
software revenues, but only 24% for the rest of the world. This
highlights not only how developed the UK market is, but also the
significant opportunity in other parts of the world.
Mobile remains an important element of omni-channel and is an
integral part of every development cycle for our products alongside
retail and web. Accordingly, we have reorganised internally to
ensure we streamline the development lifecycle to include a
sophisticated mobile solution that includes native apps and not
just HTML5 or an HTML5 based solution as most other companies
do.
Product
Playtech continues to lead innovation and can deploy unmatched
research and development resources, all of which is available to
our licensees.
Live Casino
Playtech remains focused on live casino given the strong growth
we have seen across all our licensees. We believe positive momentum
will continue in 2017 and beyond and have continued to develop our
live casino offering. Throughout the year new launches and releases
have included innovative concepts, games and features, as well as
never-before-seen real native apps that prove to be very successful
and appealing to customers. We have also continued to develop our
relationships with customers and worked closely to ensure success
and accelerated growth in their live casino operations.
In early 2017 Playtech revealed its latest ground-breaking
Augmented Reality experience within a spectacular Age of the
Gods(TM) Live environment.
The augmented reality roulette - themed around Playtech's
smash-hit suite of Age of the Gods(TM) games and due to be launched
later this year - uses the latest augmented reality technology to
significantly heighten the live experience with 3D graphics that
can be configured to suit any operator requirements, players
experience a range of visuals depending on the outcome of each game
round.
The game concept is aimed at not only creating a next generation
gaming experience, but also giving Playtech licensees greater
flexibility and further opportunities to cross-sell to a new
demographic of player who would either have not previously
considered or who could potentially re-connect to live casino.
In addition, we also opened two new Live studios in the past few
months in Latvia and Romania due to the high levels of customer
demand.
Built on top of the city's fortified 16th century walls in the
heart of Riga Old Town in Latvia, the 8,500 square meter capacity
studio dwarfs any existing live casino area in the market today.
The technology within the building is equally unmatched with
hundreds of state-of-the-art cameras, catering for hundreds more
custom-made tables and gaming areas, an advanced control and
monitoring center and large-scale dealer campus that will be used
to train and develop all of Playtech Live's staff. Every inch of
the new operation has been conceptualised, designed and delivered
with a future-first approach with all Playtech Live common and Live
dedicated licensee areas remodelled to accommodate the latest
software and hardware presenting players with the ultimate,
never-before-seen gaming experience.
The second studio, a state-of-the-art live casino studio
facility in Bucharest, Romania will cater for demand in licensees
in the newly regulated Eastern European country.
New content
We launched over 55 new games in the year, including the
innovative and exciting Age of the Gods(TM) suite, a great addition
to our own industry leading game intellectual property. This has
been a highly successful launch and has been very popular with
licensees and is based on an extensive data analysis ahead of the
games development to ensure its appeal to customers.
Playtech's scale also allows it to launch branded content. After
the period end, in February 2017 Playtech signed its largest ever,
multi-year, exclusive branded games content deal with Warner Bros
Consumer Products, on behalf of DC Entertainment, to license and
develop an extensive catalogue of iconic DC-branded film and
television properties into leading Omni-channel casino games, with
the deal being announced at the start of ICE 2017. Drawing from the
worlds of such Warner Bros. Pictures titles as Batman v Superman:
Dawn of Justice, The Dark Knight Trilogy, Suicide Squad and the
Studio's upcoming action adventure Justice League, Playtech, the
world's leading gaming content and software, systems and services
supplier, will develop a series of Omni-channel DC-branded slot,
bingo and roulette games, available across multiple channels and
devices.
As a result of extensive development during 2016 Playtech
launched post period end an industry first new slot game, Tiki
Paradise, that rewards customers with unique enhanced experiences,
features and bonuses through the use of Omni-channel play.
Launched across all channels and devices with Coral throughout
its 1,800 shop estate, Tiki Paradise is a true omni-channel game
that rewards players as they unlock enhanced features and
functionality by playing in-shop, online and on mobile, made
possible due to Playtech's cutting-edge platform technology and
unified system that enables cross-channel play.
Given the first feedbacks and performance we are confident that
omni channel content will play a key role in the success of our
omni channel approach and will become a necessary and important
element of the offering provided by retail and online operators
delivering a single coherent user experience across retail, online
and mobile. The game is equally beneficial to the licensees as it
both increases Omni-channel signs ups and incentivises the players
to remain loyal to the brand within the eco system created between
retail and online in the most efficient and responsible way. The
launch of Tiki Paradise is the first of a series of new omni
channel games expected to launch in the coming months.
Gaming division performance by vertical
Casino
Casino, Playtech's flagship offering, continues to go from
strength to strength, with revenue increasing 23% on a constant
currency basis in 2016. Casino contributed EUR354.6m to reported
revenues in 2016, with mobile revenues seeing a 113% increase in
mobile penetration.
This exceptional performance was driven by a mixture of existing
and new business, including growth from UK customers such as
Ladbrokes, Sky and BGO, with a particularly strong performance from
both Live and Asia, where we have added new customers as well as
improved our commercial terms.
The casino offering is at times mistakenly regarded as casino
games offered on operators' sites under the casino tab while the
Playtech casino platform is a lot more. Integrated with the
Playtech infrastructure and information management system the
Playtech casino platform provides online casino operators with the
most advanced and sophisticated feature-rich solution that allows
operators to better control their offering.
Playtech's cutting edge casino platform enables operators to
maximise player value by offering a full suite of real-time player
incentives and engagement tools. The platform allows for industry
standard bonusing, such as deposit match bonuses, together with
more sophisticated mechanics, including automated cashback,
free-spins, golden chip (for table and card games) and game play
bonuses. All these promotional methods can be controlled and
configured by the operator, allowing for stringent liability and
monetary control. To illustrate the platform's sophistication,
gameplay bonuses allow the operator to incentivise players based on
the outcome of a specific hand of black jack or spin of a roulette
wheel. All promotional types can be triggered by a player event,
but Playtech has also developed the ability to automate some of the
player journeys by developing business intelligence (BI) algorithms
to trigger the qualification of such incentives. Furthermore,
players can be targeted with personalised login/logout messages and
communications, segmented cross-promotion messages in-game and,
"game adviser," possibly one of the system's most effective tools.
Game advisor is a real-time BI driven recommendation engine that
suggests other games the player might be interested in, dependent
on many game-specific variables, including volatility, win hit
frequency and win distribution.
During the period, we invested heavily into the entire casino
platform and focused on its key strength as the largest distributor
of games. With its unrivalled knowledge and experience of
omni-channel game content, Playtech has built a ground-breaking new
games platform that will change the way slot games are built,
tested, certified, delivered and distributed. Our revolutionary
platform uses a modelling approach instead of a coding approach,
resulting in faster development and more cost-effective casino
content delivery than ever before. This unified approach to rapid
omni-channel game deployment enables operators seeking
differentiation and customisation to integrate bespoke games in
record time and under budget.
The new games platform technology is now being rolled out across
a number of Playtech's content creation units and, looking ahead,
it positions Playtech as not only the world's leading software and
platform provider, but also a true pioneer and world leader in
games content creation.
Services
Services grew 4% in the full year on a constant currency basis,
in line with the growth reported at the half year, reflecting the
continued transition from .com to regulated revenue streams
strengthened through the white label offering, resulting in a
higher proportion of regulated revenues for this vertical.
The significant efficiencies achieved at the beginning of 2016,
changing the operational structure to localised operations in
jurisdictions where we service our customers, will result in
approximately EUR9 million of savings on an annualised basis,
although investment in the business means that this will not simply
drop through to the bottom line given the local Investment
required.
We are also making significant progress in certain markets such
as Mexico and Spain, where we have established a broader
relationship as part of structured agreements with local companies.
This is an example of the opportunity in an increasing number of
regulated jurisdictions and soon to be regulated markets, where
well recognised retail brands intend to launch an online gaming
arm, seek a strategic partner that can equip them with not only
best of breed technology and products but a sophisticated tool box
of online operational capabilities they usually lack. The success
Playtech enjoyed in previous years and the successful launch of new
partners in key markets we believe that the Services division will
continue to see strong growth in the coming years and will play a
key role in our future success.
Bingo
In line with the trend identified at the interim results,
despite high levels of activity at the operator level, Bingo saw a
small decline in revenue at constant currency for the full year.
This was a result of continuing trend for increased bonusing from
operators. As outlined previously this approach is part of an
industry wide strategy to utilise bingo as an acquisition channel,
cross-selling strategy driving further revenues into other
verticals, predominantly casino. We believe this approach will
strengthen Playtech's position in the long term as our Playtech One
omni-channel offering will allow operators to successfully
cross-sell across all products and all verticals.
Late in the year, the company successfully migrated The Sun
Bingo to the Playtech platform as part of an initial five year
relationship. While the technical migration was successful, the low
quality of the data provided during the migration meant it required
additional analysis to ensure that the information is correctly
segmented into different types of VIPs to better utilise the
customer base. The Sun bingo brand remains amongst the best and
strongest brands in the industry and continues to attract high
levels of new players, and Playtech remains committed to ensure the
success of The Sun bingo through the delivery of better products,
data analysis and services.
The end of 2016 and the start of 2017 also saw two significant
acquisitions which have enhanced our Bingo and omni-channel
offering.
ECM is highly regarded within the bingo industry and its
extensive range of products is instrumental to the daily operation
of retail bingo in the UK and the Republic of Ireland. Its systems
provide key facilities for Main Stage Bingo, Cash Bingo, wide area
linked gaming operations and front-of-house reporting. A complete
customer support facility provides technical and repair services
for all current and legacy products.
Eyecon, announced post the period end, is a further example of
driving revenue across verticals. The acquisition strengthens
Playtech's Bingo distribution network whilst offering industry
leading slots content such as the Fluffy Favorites game and others
which will all be available to Playtech bingo licensees.
Sports
Growth in Sports slowed in the second half of 2016 following the
loss of the Mobenga contracts which came into effect at the end of
H1. Ultimately performance for the full year increased 2% at
constant currency, with the inclusion of BGT for much of H2
offsetting the loss of the contracts.
We believe that our approach to Sports is unique in the
industry. Playtech is focusing on delivering an omni-channel sports
solution to licensees. As we are seeing across all retail
industries the convergence of e-commerce and physical retail is a
two-way process. Playtech's omni-channel offering can offer a fully
integrated retail, online and mobile solution allowing licensees to
offer a seamless customer journey through online and in store
integration. As outlined above this allows retail operators to
launch an online gaming arm in newly regulated markets, partnering
with Playtech to utilise their retail base and footprint and become
the largest and best performing online bookmakers in a relatively
short period of time.
Accordingly, following the acquisition of BGT in July 2016, in
November we launched the new Playtech BGT Sports division (PBS).
The new division brings together Playtech Sports companies BGT,
Geneity, Mobenga, Unilogic and Playtech's internal Sports Trading
team and contains more than 600 employees. Playtech BGT Sports will
provide a 'bricks-to-clicks' fully integrated sports betting
technology solution based on Playtech's unique Omni-Channel
platform. With Dr Armin Sagader appointed as CEO of the new
division we believe that PBS will continue to revolutionise retail
and online businesses alike.
Post the period end, PBS announced that it has signed a
three-year agreement with OPAP, the leading Greek betting and
lottery operator, for the supply of self-service betting terminals
("SSBTs"), relevant software and services, as well as the
subsequent introduction of an Over-the-Counter (OTC) sports betting
solution. Under the agreement, PBS will supply software and
services for a combination of full-sized SSBTs, as well as the
recently launched compact SSBTs, with the initial roll-out of
machines commencing in 2017 followed by the rollout of an OTC
solution in 2018. PBS will provide a fully-managed service to OPAP
including trading and over 25,000 in-play markets.
Virtual Sports
Working with Warner Bros. Studios the virtual sports product
began life in the summer of 2015 using the most advanced systems
and technology available today. Following almost a year-long
process of exhaustive and record-breaking motion capture
initiatives at Warner Bros Studios and 3D design and modelling work
at the Playtech Studios, both in the UK, Playtech Virtual products
using professional sportsmen and women in competition conditions
and techniques and technology used in films such as Avatar,
Godzilla and James Bond's Quantum of Solace, in order to capture
hundreds of hours of movement and footage, the result of which is
as close to the real game as anyone has ever achieved with
compelling graphics, gameplay and extensive betting opportunities.
All Playtech's virtual sports products are future proof and
developed with tournament, matches and leagues in mind. Playtech
also concentrated heavily on back-end simulation, ensuring
real-life football, tennis and basketball was replicated from a
gameplay, user experience and an odds and betting perspective.
The first half of 2016 saw the launch of a pioneering Virtual
product in 2016, including best ever Virtual Tennis and a Virtual
Sports Football accumulator or Acca across all platforms, channels
and devices. Replicating a real-life football Acca, the Virtual
Sports Football Accumulator 'out of the box' product has been
rolled out across 100 UK Coral shops with the potential to deploy
it across 1,000 outlets in the next 12 months.
Land based
Land-based increased markedly in 2016, primarily reflecting the
revenues from BGT which were included from July 2016 onwards and
the organic growth of what was referred to as land based vertical.
As discussed at the interim results in August 2016, it is worth
noting that from 2017 onwards, the Land-based vertical will be
removed with revenues from this vertical allocated into Casino,
Sports, Bingo and Other as appropriate. Removing Land-based
reflects the true omni-channel nature of our offering. Revenues
from BGT will be included in the Sport vertical going forward. A
detailed breakdown of the reallocation is included below.
Poker
The online Poker market remains challenging with revenues down
17% for the fully year at constant currency. Playtech remains
dedicated to the poker product, and we believe poker remains an
important part of the full product offering of operators. However,
it remains a low margin vertical and accordingly operators focus on
investing in cross selling into casino. Notwithstanding, in some
markets such as France where only sports betting and poker are
allowed, poker remains a very valid product vertical. Playtech also
gains from the natural conversion of certain players to the poker
product. We also believe that Poker will continue to attract
recreational players to the product and is utilising it
cross-product expertise to develop new poker experiences such as an
Age of the Gods themed poker experience.
Financials Division
The year was a transformational one for Playtech's Financials
division, which today finds itself at an inflection point following
the re-positioning of the business and the structural changes in
the industry. This necessitated Ron Hoffman to take full-time
control of the business as its chief executive. Under Ron's
leadership we anticipate the Financials division will capitalise on
its position and realise the significant opportunities before
it.
There has been continuous development in the regulatory
landscape across different jurisdictions in the industry, including
the UK and Europe. Tighter on-boarding controls have been imposed
on brokers; there are now greater restrictions on marketing and
promotions; companies are required to provide enhanced AML
procedures; and, more recently, new leverage limitations were
introduced.
In the face of this more demanding regulatory framework, the
2016 results reflect the full-impact of the business transition
completed in the first half of the year. Our experience of new
regulatory frameworks learned in the Gaming division prompted
improvements to our business model, including the cessation of
relationships with Introducing Brokers and the decision to move
from a salesperson-based approach to automated funnels for customer
acquisition.
The second half of the year saw a significant improvement in the
performance of the Financials division with a small improvement in
revenues, encouraging KPIs and the benefits of cost reductions
flowing through.
In the B2C Markets.com business, we have grown active customers
by 7%. This reflects an improvement in the attrition rate and an
increase in the attractiveness of Markets's platform, following its
continued development and addition of further features, such as
live trader's trends, more relevant notifications and personalised
customer communications relevant to their trading history.
The performance improvement of Markets.com is even more visible
in the number of First Time Depositors, which increased by almost
60% compared to the first half of the year. This reflects a
significant growth trajectory, which we anticipate will translate
into an increased number of active customers, increased revenues
and EBITDA. These will be driven by efficient marketing initiatives
through our unique media buying technology and automated customer
acquisition funnels.
In November 2016, Playtech announced the acquisition of CFH, a
technology company with products including a leading Straight
Through Processing ("STP") brokerage which provides retail brokers
with multi-asset execution, prime brokerage services, liquidity and
complementary risk management tools. The acquisition significantly
enhances Playtech's position as it continues to build a B2B
offering within its Financials division. CFH's wholly owned
subsidiary, CFH Clearing Limited is regulated by the Financial
Conduct Authority (FCA) and Playtech received regulatory approval
from the FCA as part of the acquisition process.
CFH is uniquely positioned in the market with $1.5 billion in
direct interbank credit lines with tier 1 banks, liquidity
providers and prime brokers, including Barclays, Goldman Sachs,
UBS, Jefferies and more.
We see significant opportunities following the acquisition,
including enabling CFH customers to enjoy a deeper pool of
liquidity and an expanded variety of tradable instruments. In
addition, we see significant cross-selling opportunities to offer
our unique trading platform, CRM and back office systems to a
selective range of customers which will fit the relevant profile,
increasing our market reach and cater for further stickiness with
our customers.
The acquisition completed on 30 November 2016 meaning that
EUR1.8 million of new revenue has been contributed to our
consolidated accounts for 2016; and in 2017 CFH's contribution has
met expectations, with a healthy pipeline of further customers to
be on-boarded.
In summary, 2016 has seen our Financials division establish the
foundations needed to capture future growth. We now have an
efficient, compliant and competitive business model offering an
industry leading B2B and B2C solution. This young industry is
experiencing the development of appropriate regulation which will
only improve the customer experience and our model is well placed
to gain market share as the regulatory framework continues to
evolve. As the industry continues to mature and non-compliant
companies exit the sector the Financials division's unique B2C and
B2B model of will create opportunities to play a potential role in
industry consolidation.
M&A
We have been pleased with Group's M&A activity in 2016,
having spent EUR240 million on acquisitions. After the period end,
we spent a further initial consideration of GBP25 million (EUR29
million) on Eyecon.
Quickspin
In May Playtech announced the acquisition of Quickspin, a
fast-growing Swedish games studio that develops and supplies
high-quality video slots to operators, both in online real money
gambling as well as in the social gaming market.
Headquartered in Stockholm, Quickspin's portfolio currently
consists of over 20 games which the company provides to over 40
customers, including many international tier one operators.
Quickspin generated revenue and Adjusted EBITDA of EUR6.0 million
and EUR2.1 million respectively in the financial year ending 31
December 2015 and is forecast to grow significantly over the coming
years, with a number of new customers recently secured and with a
strong pipeline of both new customers and new games.
The acquisition provides Playtech with a proven virtual slot
machine games portfolio, strengthening its position as the leading
content provider in the industry, as well as providing greater
penetration in the Nordic region. In addition to Quickspin's
existing customer base, Playtech plans to cascade Quickspin's
content through its existing distribution channels across all
verticals.
Playtech will pay a maximum consideration of EUR50 million based
on 2017 and 2018 EBITDA levels. The maximum consideration of EUR50
million comprises an initial payment of EUR24 million for 100% of
the shares of Quickspin on a cash-free / debt-free basis with the
remaining maximum consideration of EUR26 million payable on an
earn-out basis by reference to Quickspin's EBITDA in 2017 and
2018.
The founders of the business, Daniel Lindberg (CEO), Joachim
Timmermans (CPO) and Mats Westerlund (CCO), who are all industry
veterans and highly regarded in the online gambling market, will
remain with the business for at least three years from
completion.
BGT
In July 2016, Playtech announced the strategic acquisition of
Best Gaming Technology GmbH ("BGT") for EUR138 million (for 90% of
the issued share capital). The consideration was paid from
Playtech's existing cash resources.
Headquartered in Vienna, BGT was founded in 2005 and is the
leading provider of sports betting software and solutions for
gaming and sports betting operators. Its customer base includes
some of the most well established bookmakers in the UK and Spain,
such as Betfred, Codere, Coral, Ladbrokes, Paddy Power Betfair and
William Hill.
BGT's main product is its proprietary software for self-service
betting terminals ("SSBTs"). Its offering combines class-leading
technology with a digital terminal that transforms the traditional
over-the-counter experience, at times generating more than double
the volumes of other SSBT providers. Other products include ePOS
and till systems for betting operators and an omni-channel web /
mobile betting platform. In addition to supplying many of the most
profitable bookmakers in the UK, the acquisition will enable
Playtech to achieve greater penetration into the Spanish and
Italian markets, with several significant potential new customers
in the pipeline.
SSBTs and ePOS systems that digitise retail betting businesses
form one of the fastest growing areas for betting companies and one
of the most important elements of a true omni-channel offering
given the priority and focus provided by the majority of retail
operators many of which are bookmakers with sports being their core
business. BGT's product portfolio will enhance the Playtech ONE
omni-channel offering, which enables players to enjoy a seamless,
anywhere-anytime gaming experience across any product, channel and
device, all using a single account and wallet.
BGT's business model is based on a revenue share of the gross
win margin from each SSBT. At the end of FY2016, BGT provided
approximately 27,000 SSBTs with its betting software to licensed
operators with this number forecast to increase significantly over
the coming years, driven primarily by the roll-out of new SSBTs,
compact terminals and tablets as bet entry devices as well as by
increased usage of existing SSBTs.
Playtech acquired 90% of the issued share capital of BGT with
the remaining 10% retained by Dr. Armin Sageder, BGT's founder and
CEO, who will remain with BGT for at least three years from
completion. Playtech has a call option to purchase the remaining
10% of BGT at a valuation of 6x BGT's 2019 EBITDA, subject to
maximum consideration of EUR55 million for the 10% holding, with
Dr. Sageder having certain put options over his 10% holding at the
same valuation. Dr. Sageder may also be entitled to an additional
payment of EUR5 million subject to the achievement of certain
operational milestones.
In FY2015, BGT generated revenues of EUR41.6 million, with all
of these revenues coming from regulated markets; and over three
quarters of revenues coming from the SSBT software segment. BGT
generated Adjusted EBITDA of EUR12.9 million in FY2015 and EUR12.5
million of Adjusted EBITDA in the first six months of 2016. In
2015, BGT generated profit before tax of EUR6.0 million and had
gross assets of EUR35.9 million as at the year end.
Playtech acquired BGT on a forecast 2016 EBITDA multiple of less
than 7x, a highly attractive multiple for an asset of this quality,
which has a track record of significant growth and which is
expected to continue to achieve significant growth going forwards
in both revenues and profit, including margin expansion. The
acquisition is expected to generate high single-digit earnings
accretion for Playtech in the first full year of ownership.
The acquisition of BGT was central to the foundation of Playtech
BGT Sports in November this year which combined BGT, Geneity,
Mobenga, Unilogic and Playtech's internal Sports Trading team.
ECM
In October 2016 Playtech acquired bingo software and hardware
solutions provider ECM Systems (ECM). ECM supplies software and
support services to the UK retail bingo market, including major
operators Gala Leisure, Mecca Bingo and the leading independent
bingo operators.
ECM is highly regarded within the bingo industry and its
extensive range of products is instrumental to the daily operation
of retail bingo in the UK and the Republic of Ireland. Its systems
provide key facilities for Main Stage Bingo, Cash Bingo, wide area
linked gaming operations and front-of-house reporting. A complete
customer support facility provides technical and repair services
for all current and legacy products.
Given the inevitable change across the gaming industry bingo
operators had to revamp and digitize their retail offering.
Accordingly, the last few years have seen ECM invest in expanding
its digital strategy. As a result, ECM is the leading provider and
licensor of digital bingo software for a wide range of handheld
tablets known as Electronic Bingo Terminals (EBT), and this
generates a significant proportion of its revenues. The
digitisations of the bingo halls together which is based on the ECM
infrastructure and technology will serve Playtech well and will
allow it to integrate ECM into Playtech world's largest bingo
network and offer a true omni channel that will not only provide
better tools to the bingo hall operators as they use one single set
of integrated infrastructure but will also provide a seamless
journey and better experience across the different channels.
The acquisition of ECM positions Playtech at the forefront of
the retail bingo market in the UK. It also empowers Playtech to
provide omni-channel solutions to the bingo operators by connecting
their retail and online operations as well as providing a platform
to supply Playtech content.
For FY 2016, ECM reported revenues of GBP9.1 million and
adjusted EBITDA of GBP4.5 million. Playtech has paid approximately
GBP14.9 million for 90% of the issued share capital of ECM. The
remaining 10%, which is subject to put and call options capped at
GBP1.1 million, is held by Allen Richardson who will remain as CEO
of the business for the next 3 years.
CFH
November this year saw the Playtech Financials division announce
the acquisition of Consolidated Financial Holdings A/S (CFH) for an
initial consideration of EUR39.8m for 70% of CFH's diluted share
capital. The remaining 30% will be subject to put and call options
between Playtech and CFH's management team, who are remaining with
the business, and which can be exercised in 2019. CFH is a
technology company with products including a leading Straight
Through Processing ("STP") brokerage which provides retail brokers
with multi-asset execution, prime brokerage services, liquidity and
complementary risk management tools. CFH's wholly owned subsidiary,
CFH Clearing Limited ("CFH Clearing") was regulated by the
Financial Conduct Authority and as a result of the acquisition
Playtech received FCA regulatory approval.
Through its proprietary ClearVision technology, CFH's services
to customers include providing liquidity control and customisation
capabilities; real time risk management tools; and cloud-based back
office.
CFH Clearing is one of the top STP venues in the world with
award-winning liquidity services and $1.5bn in direct interbank
credit lines with tier 1 banks, liquidity providers and prime
brokers including Barclays, Goldman Sachs, UBS, Jefferies and BNP
Paribas. Through its relationships with liquidity providers and
prime brokers, CFH is currently able to offer liquidity on
approximately 110 instruments.
CFH's revenue and adjusted EBITDA generated for the year ended
31 December 2015 was $19.2m (EUR17.6m) and $5.7m (EUR5.2m)
respectively.
As a result of the acquisition CFH will have access to the
Playtech's Financials division's wide range of CFD instruments
which CFH will be able to offer on its clearing system over time.
Playtech will also allow CFH to offer a deeper pool of liquidity
through the addition of intra group liquidity arrangements,
enabling more competitive prices and faster execution. Moreover,
CFH will benefit from Playtech's leading technological superiority
to further develop its offering and improve client experience.
The acquisition of CFH is a major step forward in the
development of our financial division B2B offering given the
hundreds of brokers CFH has a relationship with, an advanced
sophisticated offering and technology, coverage of an enlarged
number of instruments as well as the ability to provide an
attractive liquidity pool.
Eyecon
Following the period end in February 2017, Playtech announced
the acquisition of the entire issued share capital of Eyecon
Limited and Eyecon Pty. Ltd (together "Eyecon"), a specialist
supplier of online gaming soft slots and a bingo slots specialist
software to a number of bingo networks and other International
operators for a maximum total consideration of GBP50 million.
Eyecon was founded in Brisbane, Australia in 1997 and is a
specialist software supplier with a particular focus on bingo
audiences with an established games portfolio of over 70 games,
including the industry-leading soft gaming slot 'Fluffy
Favourites'. Eyecon has also developed its own Remote Gaming Server
(RGS) which enables it to distribute its content direct to
operators and via distributors, such as the entire 888 bingo
network including 888 own bingo brand and Virtue Fusion, Playtech's
bingo network which integrated only a selected few games so far
with the intention to offer the entire portfolio of Eyecon games
across the network for the benefit of its licensees and their
customer who will now have access to the same portfolio of Eyecon
games offered elsewhere.
Eyecon currently derives almost all its revenue from the UK
market and in line with Playtech's acquisition strategy, almost all
of Eyecon's revenues are fully regulated. The addition of Eyecon's
content portfolio strengthens Playtech's position as the leading
content provider in this key market. In addition, Eyecon's
proprietary RGS and distribution network will strengthen the
penetration of Playtech's Virtue Fusion offering.
The maximum consideration of GBP50m (c. EUR 58m) comprises an
initial payment of GBP25m (c. EUR 29m) on a cash free / debt free
basis, representing a multiple of c.8x Eyecon's current run-rate
EBITDA. An additional consideration of up to GBP25m is payable on
an earn-out basis of six times Eyecon's EBITDA in the period to
June 2019 (subject to certain adjustments) less the initial
payment.
To assist in retaining the knowledgeable and specialist Eyecon
team, its founder Scott Murray, has committed to remain with the
business for at least three years.
Current trading and outlook
Average daily revenue in the Gaming division for the first 51
days of Q1 2017 was up 27% on Q1 2016 (32% at constant currency)
and up 11% on Q4 2016 (10% at constant currency). Excluding
acquisitions, average daily revenue in the Gaming division for the
first 51 days of Q1 2017 was up 9% on Q1 2016 (12% at constant
currency) and up 11% on Q4 2016 (up 10% at constant currency).
The Financials Division has performed in line with expectations
in 2017 to date. Markets.com KPIs continue to be encouraging
against a backdrop of low volatility and CFH continues to perform
well with B2B volumes in line with expectations.
Playtech continues to focus on M&A to augment organic growth
and its M&A pipeline remains healthy.
Given the progress we have made in 2016, delivering on our
strategic objectives, we remain confident of strong performance in
2017 driven by both organic growth and the acquisitions made in
2016.
Chief Financial Officer's review
Presentation of results
The Directors believe that in order to best represent the
trading performance and results of the Group, the reported numbers
should exclude certain non-cash and one-off items including
amortisation of intangibles on acquisitions, professional costs on
acquisitions, finance costs on acquisitions, and additional various
non-cash charges.
The Directors believe therefore that Adjusted EBITDA and
Adjusted Net Profit more accurately represent the trading
performance of the business and are the key performance metrics
used by the Board when assessing the Group's financial performance.
A full reconciliation between the actual and adjusted results is
provided in Note 5 of the financial statements below.
Given the significant fluctuations in exchange rates in the
period, the underlying results are presented in respect of the
above measures after excluding acquisitions and on a constant
currency basis to best represent the trading performance and
results of the Group.
Overview
2016 has seen Playtech once again deliver a strong financial
performance with total reported revenues and Adjusted EBITDA up 12%
and 20% respectively compared to 2015. In addition, Playtech
executed its M&A strategy, investing cash of EUR240 million in
acquisitions including BGT, Quickspin, ECM and CFH, whilst
returning EUR296 million to investors through progressive
dividends, a special dividend and a EUR50 million share buy-back
programme.
Significant fluctuations in currency exchange rates, mainly in
Sterling, due to macro-economic events had a material effect on the
financial results of the year across all key metrics. On a constant
currency basis, revenues, Adjusted EBITDA and Adjusted Net Profit,
increased by 20%, 32% and 42% respectively. When further excluding
the effect of acquisitions, reflecting the underlying performance
of the business, revenues, Adjusted EBITDA and Adjusted Net Profit
increased by 13%, 28% and 48% respectively.
The percentage of total regulated revenues for the Gaming
division increased by 1% in 2016 to 42% with Sun Bingo, launched
towards the end of the 3(rd) quarter of the year, together with the
acquisitions of BGT and ECM, all contributing fully regulated
revenue streams to our top line.
Adjusted EBITDA was up 20% in the period, or 32% at constant
currency and 28% when further excluding acquisitions. Group
Adjusted EBITDA margin increased from 40% in 2015 to 42.7%, and
from 40% to 44% at constant currency, despite a greater
contribution from lower margin areas of the business such as White
Label, the Financials Division and Casual. This improved margin is
a result of tight cost control to create sustainable efficiencies
across all areas of the business as well as improved commercial
terms in Asia, which increased revenues with no material additional
cost.
Playtech continues to be highly cash generative and once again
delivered strong operating cashflows of EUR251.4 million,
representing high conversion from Adjusted EBITDA. When excluding
cash movements, which are not reflected in Adjusted EBITDA, such as
movements in jackpot liabilities, customer security deposits and
changes in client equity, cash from operating activities
represented a 94% conversion to Adjusted EBITDA
Playtech has a very strong balance sheet with cash and cash
equivalents of EUR544.8 million at the end of the year, or Adjusted
Gross cash of EUR392.0 million net of cash held on behalf of client
funds, progressive jackpot and security deposits. Together with the
Available-for-sale investments, which stood at EUR230.3 million at
year end, Playtech has considerable available resources to execute
its strategy.
Revenue
Total reported revenue increased by 12% to EUR708.6 million
(2015: EUR630.1 million) and by 20% on a constant currency basis,
with underlying growth of 13% (after excluding acquisitions at
constant currency).
New presentation of Gaming revenues by vertical
From the 2017 interim results onwards, Playtech will be removing
the Land-based vertical which reflects the true omni-channel nature
of the offering by allocating revenues which were defined as
land-based revenues to the relevant product verticals.
The revenues from Land-based were allocated as follows:
- Videobet and Videobet interactive to Casino;
- retail sport revenues, which are mainly BGT, to Sports;
- retail bingo revenues, generated by ECM to Bingo; and
- IGS, including other sale of machines, to Other.
Current Presentation 2015 2016 Change Constant
EURm EURm Currency
Change
---------------------- ------- ------- ------- ----------
Casino 308.7 354.6 15% 23%
Services 155.6 151.6 -3% 4%
Sport 32.2 30.9 -4% 2%
Land-based 29.8 57.1 92% 108%
Bingo 20.5 17.8 -13% -1%
Poker 11.2 9.1 -19% -17%
Other 12.1 21.9 81% 89%
------- ------- ------- ----------
Gaming division 570.1 643.0 13% 21%
Financials division 60.0 65.6 9% 11%
------- ------- ------- ----------
Total revenue 630.1 708.6 12% 20%
Future Presentation 2015 2016 Change Constant
EURm EURm Currency
Change
--------------------- ------- ------- ------- ----------
Casino 328.8 374.1 14% 22%
Services 155.6 151.6 -3% 4%
Sport 34.5 58.4 69% 82%
Land-based - - - -
Bingo 20.5 19.8 -3% 10%
Poker 11.2 9.1 -19% -17%
Other 19.5 30.0 54% 62%
------- ------- ------- ----------
Gaming division 570.1 643.0 13% 21%
Financials division 60.0 65.6 9% 11%
------- ------- ------- ----------
Total revenue 630.1 708.6 12% 20%
From the old presentation of the verticals to the new there was
an increase in the 2016 Casino revenue figure of EUR19.5 million
and in Sport an increase of EUR27.5 million. Bingo saw a EUR2.0
million increase while Other increased by EUR8.1 million.
Casino continues to be the biggest product vertical, adding
EUR45.9 million of revenues in the period, taking Casino revenues
to EUR354.6 million, with growth of 23% at constant currency and
21% when excluding acquisitions. Mobile casino revenues more than
doubled over 2015, pushing mobile penetration to 29% compared to
16% in 2015. The main growth drivers in both total casino and
mobile casino were the continued growth in Asia, which more than
tripled its mobile penetration compared to 2015; and the growth in
the UK's casino mobile revenues, reaching more than 50% in
penetration, led by top operators, including Ladbrokes, GalaCoral,
Bet365 and Sky. The growth in Casino is predominantly from core
casino, e.g. slots and roulette, with addition growth generated by
Playtech Live casino and the Playtech Open Platform.
Services revenues increased by 4% on a constant currency basis,
whilst decreasing by 3% on a reported basis. The decrease on a
reported basis is mainly due to a faster decline in .com revenues,
mostly reflected in marketing and affiliation services revenues,
than the increase in regulated revenues. The increase in regulated
services revenues were mainly generated from structured agreements,
such as Caliente and Marca, and a moderate increase in white-label
operations revenues.
Sport revenues increased in 2016 by 2% on a constant currency
basis after excluding acquisitions, decreasing on a reported basis
by 4% to EUR30.9 million. The decrease on a reported basis, as
previously indicated, is mainly due to the loss of three Mobenga
contracts with UK licensees. When excluding the aforementioned
licensees, Sports grew by 53%, on a reported basis, mainly from
growth in Ladbrokes and Caliente.
Land-based revenues increased by 9% at constant currency, after
excluding the acquisitions of BGT and ECM and by 92% on a reported
basis. The underlying growth driven mainly by growth from IGS and a
one-off sale income from Elite gaming, which should start producing
recurring revenues at the end of Q3 2017.
Bingo revenues decreased by 1% on a constant currency basis and
reported bingo revenues decreased by 13%. Bingo remains a gateway
to maximise value by attracting players and then cross-sell them to
casino and other product verticals. Bonusing schemes by operators
were the main reasons for the decrease, while KPIs, such as active
players per week, bets per week and gross gaming win per week, at
an all-time high. If Bingo casino side games are added to the
revenues reported in the Bingo line item, the total revenues would
be EUR28.9 million. During the year, key contracts were renewed,
such as Paddy Power-Betfair, William Hill and others, securing
Playtech's strong position in this important vertical.
Poker reported revenues have decreased by 19% compared to 2015,
as the entire market continues to be challenging. Poker is still an
important vertical in the operators' offering and Playtech remains
dedicated to the product.
Other revenues grew by 81% mainly due to Casual games revenues
which enjoyed a significant uplift in the second half of the year
following the launch of the Narcos branded game.
Revenues in Financials division
Playtech completed the acquisition of Markets Limited on 8 May
2015 with the acquisition of CFH completing on 30 November 2016
with the respective financial performance from these companies
consolidated into Group results from these dates.
2016 revenue in the Financials division was EUR65.6m, up 9%
versus 2015. CFH contributed EUR1.8m to 2016 revenues from
completion.
As presented in the 2015 final results and 2016 interim results,
since Playtech entered into the financial vertical, the regulatory
backdrop under which it operates has become increasingly developed,
with tighter restrictions and controls imposed on brokers across
all aspects of the business.
The first half results reflect the full-impact of the business
transition and improvements made due to the regulatory changes,
including the cessation of relationships with Introducing Brokers;
moving away from binary options; fundamental changes in onboarding
processes; financial promotions as well as the transition made from
a salesperson based approach to automated funnels for customer
acquisition and retention initiatives.
Following these changes, the second half of 2016 saw a material
improvement in performance with encouraging KPIs. Total actives CFD
customers were up 10% in H2 2016 with total first time CFD
depositors up 37%. As discussed at the time of the interim results
in 2016, the second half of the year also benefitted from further
reductions in the cost base made in June 2016 with headcount now
reduced by a third since the acquisition in May 2015.
Adjusted EBITDA & Adjusted EBITDA margin
2016 2015
EUR'000 EUR'000
----------------------------------------------- ------------------ ------------------
EBITDA 291,852 234,011
Employee stock option expenses 6,940 4,904
Professional expenses on acquisitions 3,441 6,181
Irrecoverable deposit and professional fees
on abandoned acquisitions - 6,792
Adjusted EBITDA 302,233 251,888
Adjusted EBITDA margin 42.7% 40.0%
Adjusted EBITDA on a constant currency basis 331,586 251,888
Adjusted EBITDA margin on a constant currency
basis 44.0% 40.0%
EBITDA related to acquisitions at constant
currency (29,774) (16,774)
Underlying Adjusted EBITDA 301,812 235,114
Underlying Adjusted EBITDA margin 47.1% 41.4%
The Adjusted EBITDA margin increased significantly from 40.0% in
2015 to 42.7% in 2016 and 44.0% on a constant currency basis. When
excluding the effect of acquisitions, the margin increased to
47.1%. This improved margin is a result of tight cost control to
create sustainable efficiencies across all areas of the business as
well as improved commercial terms in Asia, which increased revenues
with no material additional cost.
Adjusted EBITDA for the Financials division was EUR15.4 million,
against an adjusted EBITDA of EUR15.9 million in 2015. The
reduction in EBITDA compared to the prior period was a direct
result of the reduced revenue arising from lower volatility in 2016
when compared to 2015, together with the consequences of the
business enhancements in building a solid foundation for future
growth.
It is worth noting that Adjusted EBITDA margin will become a
less relevant metric for the Group over time as due to the greater
contribution from lower margin areas of the business such as White
Label, the Financials Division and Casual.
Cost of operations
2016 2015*
EUR'000 EUR'000
----------------------------- --------- ---- --------- ----
Adjusted operating expenses 406,325 378,198
Less revenue-driven costs 52,004 36,026
Adjusted operating expenses
excluding revenue-driven
costs 354,321 342,172
Employee-related costs 190,023 53% 181,711 53%
Cost of service 51,076 14% 48,242 14%
Operational marketing
costs 41,366 12% 45,773 13%
Admin and office costs 34,320 10% 28,702 9%
Other costs 24,473 7% 26,129 8%
Travel, exhibition and
marketing costs 13,063 4% 11,615 3%
Adjusted operating expenses
excluding revenue-driven
costs 354,321 342,172
* Direct marketing costs relating both to the Gaming Services
division and the Financials division were reallocated to
Operational marketing costs, both in 2016 and in the comparative
figures of 2015.
Adjusted operating expenses increased by 7%, from EUR378.2
million to EUR406.3 million in 2016 and by 12% on a constant
currency basis.
Revenue-driven costs comprise mainly of white-label related
costs, such as brand fees gaming taxes, processing fees and others,
fees paid to sales agents and license fees paid to third parties,
including games developers, IP owners and branded content, which
are typically calculated as a share of the licensee revenues
generated. Revenue-driven costs as a proportion of total revenue
increased from 6% in 2015 to 7% in 2016, mainly due to additional
cost related to Sun Bingo.
Employee-related costs increased by 5%, and decreased by 4%
after excluding acquisitions. The decrease is mainly due to the
weakening of the Sterling compared to Euro and due to a cost
reduction plan that was executed towards the end of the first half
of 2016, which resulted in a decrease of about 500 employees when
comparing the headcount at the end of 2016 to the end of 2015,
excluding acquisitions made during the year. Capitalised
development costs increased by 1%, to 15% of total employee related
costs to EUR34.2 million (2015: EUR28.6 million), reflecting 36%
and 34% out of development employee related costs in 2016 and 2015
respectively. The increase in the capitalisation rate is mainly due
to the development of the CFD trading platform and the development
of the Sportsbook system, including BGT, together with new games
and platform capabilities.
Cost of service comprises mainly of dedicated development teams
cost, charged back to licensees, hosting and software license cost.
During 2016 B2B marketing cost was reclassified from cost of
service to operational marketing cost and the comparative numbers
were adjusted accordingly. The decrease is mainly as a result of
last year's expiration of a licensing agreement for certain real
money and social games IP.
Admin and office costs increased by 20% and by 11% excluding
acquisitions, mainly due to expansion of existing offices. As a
proportion of adjusted non-revenue-related costs of operation
remained broadly at the same level as in 2015.
Operational marketing costs include marketing cost for B2B and
white-label activity of the gaming division and B2C marketing costs
in the financial division. These costs were reclassified from
revenue driven costs and cost of service, including in the 2015
comparative to better reflect the operational marketing costs of
the business. In 2016 there was a 10% decrease and a 26% decrease
when excluding acquisitions, mainly linked to the decrease in
marketing revenues.
Finance income, financial cost and tax
Foreign exchange rate losses of EUR44.7 million during 2016,
compared to a gain of EUR10.6 million in 2015 is the main reason
that adjusted net finance cost was EUR37.2 million in 2016 compared
to an adjusted net finance income of EUR9.4 million in 2015,
together with higher interest cost, due to a full term of interest
on the debt facility, which were offset by dividends from the
available for sale investment in Ladbrokes of EUR3.7 million (2015:
EUR2.3 million) and Plus500 of EUR8.2 million (2015: zero).
The Company is tax registered, managed and controlled from the
Isle of Man, where the corporate tax rate is set at zero. The
Group's main trading subsidiaries are registered either in the Isle
of Man, British Virgin Islands, Alderney, Gibraltar or Cyprus,
where effective tax rates are low or set at zero. Other
subsidiaries (normally related to the Group's development centres)
are located in other jurisdictions and operate on a cost-plus
basis, and are taxed on their residual profits. The tax charge in
2016 was EUR6.3 million (2015: EUR5.6 million).
Adjusted profit and Adjusted EPS
2016 2015
EUR'000 EUR'000
---------------------------------------- -------------------- ----------------
Profit attributable to owners
of the parent 193,030 135,810
Amortisation on acquisitions 44,318 41,751
Impairment of intangible assets 12,335 -
Non-cash accrued bond interest 9,802 9,388
Employee stock option expenses 6,940 4,904
Professional costs on acquisitions 3,441 6,181
Movement in deferred and contingent
consideration 832 1,088
Profit on disposal of investment (64,459) -
in associates
Irrecoverable deposit and professional
fees on abandoned acquisitions - 6,792
Adjusted profit attributable
to owners of the parent 206,239 205,914
Adjusted basic EPS (in Euro
cents) 65.7 67.5
Adjusted diluted EPS (in Euro
cents) 59.8 61.8
Constant currency impact 72,110 (10,578)
Adjusted profit for the year
attributable to owners of parent
on constant currency 278,349 195,336
Adjusted Net Profit on constant
currency related to acquisitions (6,673) (11,333)
Underlying adjusted profit for
the year - attributable to owners
of the parent 271,676 184,003
Adjusted profit remained at the same level as in 2015,
significantly impacted by fluctuations in currency exchange rates,
mainly in Sterling, resulting in unrealised exchange rate loses. On
a constant currency basis, Adjusted Net Profit increased by 42%
compared to 2015.
Adjusted diluted EPS was down 3%, whilst Adjusted diluted EPS on
a constant currency basis was up 37%, impacted by an increase in
shares from the placing in June 2015 and a decrease due to the
share buyback executed in December 2016. Adjusted diluted EPS is
calculated on the basis of a weighted average number of shares in
issue during 2016 of 347.5 million which includes the shares
underlying the convertible bond issued in November 2014. The
diluted EPS and the adjusted diluted EPS amounts for 2015 was
adjusted to reflect the impact of the convertible bonds.
Total amortisation in the period was EUR87.5 million (2015:
EUR70.8 million), an increase generated mainly by new acquisitions
and impairment of certain intangible assets of EUR12.3 million, the
largest of these relating to the impairment of goodwill of
Pokerstrategy, following a decline in the Poker market and loss of
key customer. When excluded, amortization decreased by a marginal
3%.
Cashflow
Playtech continues to be highly cash generative and once again
delivered strong operating cashflows of EUR251.4 million.
Cash conversion
2016 2015
EUR'000 EUR'000
------------------------------------------- ------------- ------------
Adjusted EBITDA 302,233 251,888
Net cash provided by operating activities 251,366 200,768
------------- ------------
Cash conversion 83% 80%
Decrease /(Increase) in Progressive,
operators' jackpots, security deposits 16,581 (5,973)
Decrease in Client equity 17,512 6,496
Adjusted net cash provided by operating
activities 285,459 201,291
------------- ------------
Adjusted Cash conversion 94% 80%
Operating cash conversion improved from 80% to 94% from Adjusted
EBITDA when adjusted for jackpots, security deposits and client
equity. Since the timing of cash inflows and outflows for jackpots,
security deposits and client equity only affects operating cashflow
for technical accounting reasons, and not EBITDA, adjusting these
cash fluctuations is essential to truly reflect the quality of
revenues and cash collection.
The increase in cash conversion reflects the improvement in the
Gaming division days sales outstanding ("DSO") from 48 days at the
end of 2015 and 60 days at the first half of 2016 to 40 days at the
end of the year. As indicated previously the higher trade
receivables in prior periods were part of regular course of
business, as there were no changes to customer's payment terms or
revenue recognition methods.
Net cash outflows from investing activities totalled EUR219.7
million in the period. EUR240.2 million relates to consideration
paid for acquisitions including BGT, Quickspin, ECM, CFH and
others. Cash outflows from financing activities included
EUR96.1million of annual and interim dividend payments, EUR149.6
million of special dividend payment and a EUR49.8 million share
buyback programme.
Balance sheet and financing
As at 31 December 2016, cash and cash equivalents amounted to
EUR544.8 million, a decrease of EUR313.1 million compared to the
end of 2015, following the EUR245.7 million paid in dividend and
special dividend during the year, EUR49.8 million of share
buy-back, total acquisitions of EUR240.2 million and the exchange
rate losses of EUR44.7 million. Playtech acquired Eyecon after year
the end for an initial amount of GBP25 million.
Progressive, operators' jackpots and security deposits decreased
by EUR16.6 million to EUR46.8 million and client funds and deposits
increased by EUR62.3 million, including the client funds acquired
from CFH, to EUR106.1 million, from the end of 2015. Cash and cash
equivalents net of cash held on behalf of client funds, progressive
jackpot and security deposit is EUR392.0 million
Total available-for-sale investments were EUR230.3 million, a
decrease compared to the end of 2015, mainly due a depreciation in
value of holdings in Plus500 and in Ladbrokes and exchange rate
losses in total of EUR53.9 million, which was set off by additional
shares in Ladbrokes, which were received on 1 November 2016,
following the completion of the merger between Ladbrokes and Coral
Group in total of EUR44.5 million.
Contingent and deferred consideration liability increased to
EUR209.1 million, mainly due to the redemption liabilities on
Quickspin, BGT and CFH acquisitions.
Acquisition Contingent consideration* Maximum payable
and redemption liability earnout
as of 31.12.2016
--------------------- -------------------------- ----------------
Markets EUR139.1 million EUR250 million
--------------------- -------------------------- ----------------
Quicksipin EUR24.1 million EUR26 million
--------------------- -------------------------- ----------------
Best Gaming
Technology EUR21.4 million EUR60 million
--------------------- -------------------------- ----------------
Consolidated
Financial Holdings EUR17.4 million $76.6 million
--------------------- -------------------------- ----------------
ECM EUR4.2 million** GBP1.1 million
--------------------- -------------------------- ----------------
Others EUR2.8 million
--------------------- -------------------------- ----------------
*net of discount applied
** Includes working capital adjustment
Dividend
To provide greater certainty and consistency of dividend
payments, the Board adopted a progressive dividend policy in 2016
which allows the Board to reflect its confidence in the growth and
cash generation of the business without being tied to a firm
percentage payout as one-off items can impact results, such as the
impact from foreign exchange which we saw in 2016.
Playtech's intention to grow dividends from the current level in
line with the underlying performance of the business on a smoothed
basis and to continue to pay the dividend split approximately
one-third as an interim dividend and two-thirds as a final
dividend.
In October 2016 the Company paid an interim dividend of 11.0
EURcents per share (2015: 9.6 EURcents per share), an increase of
15%.
The Board has recommended a final dividend of 21.7 EURcents per
share (2015: 18.9 EURcents), an increase of 15% over 2015, taking
the total dividend for 2016 to 32.7 EURcents per share being a
total payout of EUR96 million, or EUR246 million including the
EUR150m special dividend paid in November and December 2016. The
final dividend is subject to shareholder approval at the AGM in May
2017.
For those shareholders wishing to receive their dividends in
Sterling the last date for currency elections is 12 May 2017.
Timetable:
Ex-dividend Thursday 4 May 2017
date:
Record date Friday 5 May 2017
for dividend:
Currency election Friday 12 May 2017
date:
Payment date: Friday 2 June 2017
Principal risks and uncertainties
The key risks, which will be discussed further including how
they are being addressed in Playtech's 2016 Annual Report (which
will be available in the investor relations section of the
corporate website), are:
Risks relating to both the Gaming division and Financials
division
-- Regulation - licensing requirements
The Group holds a number of licences for its activities from
regulators. Loss of all or any of these licences may adversely
impact on the revenues and/or reputation of the Group.
-- Regulation - Local requirements
New licensing regimes may impose conditions. For example,
introduction of a requirement to locate significant technical
infrastructure within the relevant territory or to establish and
maintain real-time data interfaces with the regulator. Such
conditions present operational challenges and may prohibit the
ability of licensees to offer the full range of the Group's
products.
-- Taxation
Given the environment in which the Group operates, the business
is exposed to continuously evolving rules and practices governing
the taxation of e-commerce activity in various jurisdictions.
Adverse changes to tax rules and changes may increase the Group's
underlying effective tax rate and reduce profits available for
distribution.
-- Economic Environment
A downturn in consumer discretionary spend or macroeconomic
factors outside of Playtech's control could result in reduced spend
by consumers on gambling and financial trading and the Group's
revenues would fall.
-- Cash Management - Acquisitions
Playtech have significant cash balances, which may be used to
acquire other businesses. Such acquisitions may not deliver the
expected synergies and/or benefits and may destroy shareholder
value.
-- Cash Management - Cash Balances
Foreign exchange volatility could impact the Group's financial
position
-- Key Employees
The Group's future success depends in large part on the
continued service of a broad leadership team including executive
Directors, senior managers and key personnel. The development and
retention of these employees along with the attraction and
integration of new talent cannot be guaranteed.
-- IT Security
The risk of impairment to our operations for example through
cyber and distributed denial of service (DDoS) attacks, technology
failure or terrorist attack continues to be one that the Group
considers to be significant. System failure could significantly
affect the services offered to our licensees.
-- Regulatory - Data Protection
The requirements of the new EU General Data Protection
Regulations (GDPR) will come into force in May 2018. This places
onerous responsibilities on data controllers and processors who
have users in the EU regardless of where the data is held or
processed.
-- Regulatory - Preventing Financial Crime
New regulations requiring companies to take action in preventing
financial crime are being developed. These include a new Anti-Money
Laundering (AML) directive coming into force on 26th June 2017 and
calls for improved Anti-Bribery and Corruption (ABC)
regulations.
-- Intellectual Property Rights
The Group's primary commercial activity is as a licensor of
gambling software. The Group predominantly owns the intellectual
property (IP) rights in that gambling software, including the IMS
which is key to maintaining our competitive advantage. Any claim
that the Group doesn't own its IP (by a licensee or a third party),
or any copying of the Group's IP by a third party, could have a
significant effect on revenues. In addition, the Group licenses
intellectual property from third parties, including creation of
very successful branded games. Any loss of such IP rights could
lead to a decline in casino revenues.
-- Business Continuity Planning
Loss of revenue, reputational damage or breach of regulatory
requirements may occur as a result of a business or location
disruptive event.
Additional risks relating to the Gaming division
-- Regulatory - Responsible Gambling
Responsible gambling is a material concern to society as well as
a regulatory priority. Licensing requirements are regularly updated
to ensure that companies in the sector provide a safe environment
for consumers. Recent trends have seen an additional regulatory
focus on treating customers fairly and conducting marketing and
advertising in a responsible manner.
Additional risks relating to the Financials division
-- Market exposure
The fair value of financial assets and financial liabilities
could adversely fluctuate due to movements in market prices of
foreign exchange rates, commodity prices, equity and index
prices.
-- Regulatory - Capital Adequacy
The requirement to maintain adequate regulatory capital may
affect the Group's ability to conduct its business and may reduce
profitability.
-- Trading volume
Low volatility within foreign exchange rates, commodity prices,
equity and index prices may reduce profitability.
By order of the Board,
Mor Weizer Andrew Smith
Chief Executive Officer Chief Financial Officer
22 February 2017 22 February 2017
Directors' responsibility statement
We confirm to the best of our knowledge;
-- The Group and Company financial statements, which have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation, give a true and
fair view of the assets, liabilities, financial position and profit of the Group and Company; and
-- The Annual Report includes a fair review of the development and performance of the business and the financial
position of the Group and Company, together with a description of the principal risks and uncertainties that they
face.
The directors of Playtech plc are listed in the Group's Annual
Report and Accounts for the year ended 31 December 2016. A list of
current directors is maintained on Playtech's website,
www.playtech.com
By order of the Board,
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2016
2016 2015
Note Actual Adjusted Actual Adjusted
EUR'000 *EUR'000 EUR'000 *EUR'000
--------------------------------------------------------------- ----- ---------- ---------- ---------- ----------
Revenue 4 708,558 708,558 630,086 630,086
Distribution costs before depreciation and amortisation (345,934) (340,790) (331,705) (327,791)
Administrative expenses before depreciation and amortisation (70,772) (65,535) (64,370) (50,407)
EBITDA 291,852 302,233 234,011 251,888
Depreciation, amortisation and impairment (107,600) (50,947) (85,398) (43,647)
Finance income 7a 13,270 13,270 14,631 14,631
Finance cost 7b (61,119) (50,485) (15,666) (5,190)
Share of profit from joint ventures 13a 146 146 229 229
Share of loss from associates 13b (693) (693) (5,856) (5,856)
Profit on disposal of investment in associate 13c 64,459 - - -
Profit before taxation 200,315 213,524 141,951 212,055
Tax expenses 8 (6,303) (6,303) (5,646) (5,646)
Profit for the year 194,012 207,221 136,305 206,409
Other comprehensive income for the year:
Items that may be classified to profit or loss:
Change in fair value of available for sale equity instruments 14 (53,868) (53,868) 1,160 1,160
Exchange gains arising on translation of foreign operations 14,251 14,251 3,491 3,491
Total items that may be classified to profit or loss (39,617) (39,617) 4,651 4,651
Total comprehensive income for the year 154,395 167,604 140,956 211,060
Profit for the year attributable to:
Owners of the parent 193,030 206,239 135,810 205,914
Non-controlling interest 982 982 495 495
194,012 207,221 136,305 206,409
Total comprehensive income attributable to:
Owners of the parent 153,543 166,752 140,236 210,340
Non-controlling interest 852 852 720 720
154,395 167,604 140,956 211,060
Earnings per share for profit attributable to the owners of the parent during the
year:
Basic (cents) 9 61.4 65.7 44.5 67.5
Diluted (cents) 9 58.8 59.8 43.7 61.8
* Adjusted numbers relate to certain non-cash and one-off items
including amortisation of intangibles on acquisitions, professional
costs on acquisitions and irrecoverable deposit and abandoned
acquisitions, finance costs on acquisitions, change in fair value
of available-for-sale investments in the income statement, non-cash
accrued bond interest and additional various non-cash charges. The
directors believe that the adjusted profit measures represent more
closely the consistent trading performance of the business. A full
reconciliation between the actual and adjusted results is provided
in Note 5.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2016
Total
attributable
Additional Available Employee Convertible Put/Call Foreign to equity
paid in for sale Retained benefit bond option options exchange holders of Non-controlling Total
capital reserve earnings trust reserve reserve reserve parent interest equity
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
----------------- ----------- ---------- ---------- --------- ------------ --------- --------- ------------- ---------------- ----------
Balance at 1 Jan
2016 638,209 1,964 592,051 (27,495) 45,392 - 3,266 1,253,387 7,308 1,260,695
Changes in
equity for the
year
Total
comprehensive
income for the
year - (53,021) 193,030 - - - 13,534 153,543 852 154,395
Dividend paid - - (245,734) - - - - (245,734) - (245,734)
Exercise of
options - - (1,937) 2,078 - - - 141 - 141
Employee stock
option scheme - - 6,812 - - - - 6,812 128 6,940
Share buy back (10,445) - (39,384) - - - - (49,829) - (49,829)
Acquisition of
minority
interest - - (5,974) - - - - (5,974) (1,320) (7,294)
Non-controlling
interest
acquired on
business
combination - - - - - (34,341) - (34,341) 14,746 (19,595)
Balance at 31
December 2016 627,764 (51,057) 498,864 (25,417) 45,392 (34,341) 16,800 1,078,005 21,714 1,099,719
Balance at 1 Jan
2015 324,774 804 537,692 (36,154) 45,392 - - 872,508 675 873,183
Changes in
equity for the
year
Total
comprehensive
income for the
year - 1,160 135,810 - - - 3,266 140,236 720 140,956
Dividend paid - - (81,805) - - - - (81,805) - (81,805)
Issue of share
capital (net of
issue cost) 313,032 - - - - - - 313,032 - 313,032
Exercise of
options 403 - (4,381) 8,659 - - - 4,681 140 4,821
Employee stock
option scheme - - 4,735 - - - 4,735 169 4,904
Acquisition of
minority
interest - - - - - - - - 131 131
Non-controlling
interest
acquired on
business
combination - - - - - - - - 5,473 5,473
Balance at 31
December 2015 638,209 1,964 592,051 (27,495) 45,392 - 3,266 1,253,387 7,308 1,260,695
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2016
2016 2015
Note EUR'000 EUR'000
-------------------------------- ----- ------------- -------------
NON-CURRENT ASSETS
Property, plant and equipment 11 72,893 51,337
Intangible assets 12 1,014,635 750,872
Investments in equity
accounted associates
& joint ventures 13 39,026 51,778
Available for sale investments 14 230,278 237,100
Other non-current assets 15 26,861 20,830
1,383,693 1,111,917
-------------------------------- ----- ------------- -------------
CURRENT ASSETS
Trade receivables 16 73,744 74,632
Other receivables 17 73,966 27,806
Cash and cash equivalents 18 544,843 857,898
692,553 960,336
-------------------------------- ----- ------------- -------------
TOTAL ASSETS 2,076,246 2,072,253
EQUITY
Additional paid in capital 19 627,764 638,209
Available-for-sale reserve (51,057) 1,964
Employee Benefit Trust 19 (25,417) (27,495)
Convertible bonds option
reserve 21 45,392 45,392
Put/Call options reserve (34,341) -
Foreign exchange reserve 16,800 3,266
Retained earnings 498,864 592,051
Equity attributable to
equity holders of the
parent 1,078,005 1,253,387
-------------------------------- ----- ------------- -------------
Non-controlling interest 21,714 7,308
TOTAL EQUITY 1,099,719 1,260,695
-------------------------------- ----- ------------- -------------
NON CURRENT LIABILITIES
Loans and borrowings 20 200,000 200,000
Convertible bonds 21 266,230 256,429
Deferred revenues 3,454 3,235
Deferred tax liability 24 40,443 14,049
Contingent consideration
and redemption liability 22 204,550 141,347
Other non-current liabilities 1,627 1,175
716,304 616,235
CURRENT LIABILITIES
Trade payables 23 28,171 17,411
Progressive operators'
jackpots and security
deposits 46,759 63,340
Client deposits 76,229 -
Client funds 29,863 43,761
Tax liabilities 11,732 5,910
Deferred revenues 4,456 4,355
Contingent consideration 22 4,577 4,491
Other payables 25 58,436 56,055
260,223 195,323
TOTAL EQUITY AND LIABILITIES 2,076,246 2,072,253
The financial information was approved by the Board and
authorised for issue on 22 February 2017.
Mor Weizer Andrew Smith
Chief Executive Officer Chief Financial Officer
CONSOLIDATED STATEMENT OF CASH FLOWS
2016 2015
Note EUR'000 EUR'000
---------------------------------- -------- ---------- ----------
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit after tax 194,012 136,305
Adjustments to reconcile
net income to net cash
provided by operating
activities (see below) 67,085 69,950
Income taxes paid (9,731) (5,487)
Net cash provided by operating
activities 251,366 200,768
---------------------------------- -------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Loans and deposits advanced (9,162) (6,386)
Acquisition of property,
plant and equipment 11 (26,224) (27,327)
Return on investment in
joint ventures and associates 13a 1,844 2,362
Acquisition of intangible
assets 12 (13,019) (4,331)
Acquisition of subsidiaries (240,225) (228,414)
Cash of subsidiaries on
acquisition 100,244 49,487
Capitalised development
costs 12 (36,176) (31,357)
Investment in equity-accounted
associates 13b,13c (1,701) (25,503)
Investment in available-for-sale
investments 14 - (209,797)
Return on available-for-sale
investments 7a 11,894 2,311
Proceeds from sale of
property, plant and equipment 145 398
Acquisition of minority
interest (7,329) (598)
Net cash used in investing
activities (219,709) (479,155)
---------------------------------- -------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends paid to the
holders of the parent (245,734) (81,805)
Issue of share capital,
net of issue costs - 313,032
Share buy back 19 (49,829) -
Interest paid on convertible
bonds and bank borrowing (4,594) (2,685)
Proceeds from bank borrowings 20 - 200,000
Exercise of options 141 4,818
Net cash (used in)/from
financing activities (300,016) 433,360
---------------------------------- -------- ---------- ----------
(DECREASE)/INCREASE IN
CASH AND CASH EQUIVALENTS (268,359) 154,973
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 857,898 692,347
Exchange (losses)/gains
on cash and cash equivalents (44,696) 10,578
CASH AND CASH EQUIVALENTS
AT OF YEAR 544,843 857,898
---------------------------------- -------- ---------- ----------
2016 2015
EUR'000 EUR'000
-------------------------------------- --------- ---------
ADJUSTMENT TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Income and expenses not affecting
operating cash flows:
Depreciation 20,092 14,578
Amortisation 75,173 69,610
Impairment 12,335 1,210
Share of profit from joint
ventures (146) (229)
Share of loss from associates 693 5,856
Non- cash transaction (30,686) -
Non-cash accrued bond interest 9,802 9,388
Income tax expense 6,303 5,646
Employee stock option plan
expenses 6,940 4,904
Movement in deferred and contingent
consideration 832 1,088
Return on available for sale
investments (11,894) (2,311)
Exchange losses/gains on cash
and cash equivalents 44,696 (10,578)
Other (191) 230
Changes in operating assets
and liabilities:
Increase/(decrease) in trade
receivables 12,258 (29,010)
Increase in other receivables (43,551) (3,169)
Increase/(decrease) in trade
payables 4,969 (6,842)
Increase/(decrease) in progressive,
operators jackpot, security
deposits (16,582) 5,973
Decrease in client funds (17,512) (6,496)
Increase/(decrease) in other
payables (5,910) 12,353
Decrease in deferred revenues (536) (2,251)
67,085 69,950
------------------------------------- --------- ---------
Acquisition of subsidiary
2016 2015
Note EUR'000 EUR'000
----------------------------------- ----- -------- --------
Acquisitions in the year
A. Acquisition of Best Gaming
Technology GmbH 26b 138,490 -
B. Acquisition of Consolidated
Financial Holdings AS 26d 38,927 -
C. Acquisition of Quickspin
AB 26a 24,461 -
D. Acquisition of ECM Systems
Holdings Ltd 26c 25,038 -
E. Other acquisitions 26e 9,545 -
Acquisitions in previous years
A. Acquisition of Yoyo Games
Limited 1,808 14,427
B. Acquisition of Markets Limited - 207,987
C. Other acquisitions 1,956 6,000
240,225 228,414
----------------------------------- ----- -------- --------
Non-cash transaction
2016 2015
Note EUR'000 EUR'000
-------------------------------------- ----- -------- --------
Disposal of investment in associate
Fair value of Ladbrokes Coral
plc shares received 13c 44,477 -
Cost related to the software (5,312) -
and services agreement
Disposal of investment in associate 13c (6,893) -
-------- --------
Profit on disposal of investment 32,272 -
in associate
-------- --------
Impairment of investment in
associate 13b (1,586) -
Net profit on disposal of investment 30,686 -
in associate
-------------------------------------- ----- -------- --------
NOTE 1 - GENERAL
Playtech plc and its subsidiaries (the "Group") develop unified
software platforms for the online and land-based gambling industry,
targeting online and land-based operators. Since May 2015 the Group
also offered an online trading platform to retail customer which
enabled them to trade CFD (Contracts for Differences) on a variety
of instruments which fall under the general categories of Foreign
exchange, Commodities, Equities and indices. In the context of this
activity, the Group acts as a market-maker in a predominantly B2C
environment. Following the acquisition of CFH in November 2016, the
Group also provides B2B clients with technology for liquidity and
clearing. Playtech's gaming applications - online casino, poker and
other P2P games, bingo, mobile, live gaming, land-based terminal
and fixed-odds game are fully inter-compatible and can be freely
incorporated as stand-alone applications, accessed and funded by
the operators' players through the same user account and managed by
the operator by means of a single, powerful management
interface.
Basis of preparation
The directors consider that the Group has adequate resources to
continue in operational existence for the foreseeable future and
that it is therefore appropriate to adopt the going concern basis
in preparing its financial statements.
The financial information set out in this document does not
constitute the Group's statutory accounts for the year ended 31
December 2016 or 31 December 2015. The Annual Report and financial
statements for the year ended 31 December 2016 were approved by the
Board of Directors on 22 February 2017 along with this preliminary
announcement. The auditor's report on the statutory accounts for
both the year ended 31 December 2016 and 31 December 2015 was
unqualified.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation
of the financial information, on a consistent basis, are:
Accounting principles
This financial information has been prepared in accordance with
International Financial Reporting Standards, International
Accounting standards and interpretations (collectively IFRS) issued
by the International Accounting Standards Board (IASB) as adopted
by the European Union ("adopted IFRSs"). In the current year the
Group has adopted all of the new and revised standards and
interpretations issued by the IASB and the International Financial
Reporting Interpretations Committee (IFRIC) of the IASB, as they
have been adopted by the European Union, that are relevant to its
operations and effective for accounting periods beginning on 1
January 2016.
New standards, interpretations and amendments effective from 1
January 2016
There are no new standards, interpretations or amendments which
are effective for periods beginning on or before 1 January 2016
which have a material effect on the Group's financial
information.
The directors are still considering the potential impact of IFRS
15: Revenue from contracts with customers, and IFRS 9: Financial
Instruments, but do not expect these standards to have a material
effect on the Group's future financial information. The directors
are still considering the potential impact of IFRS 16: Leases but
expect a material adjustment to arise on transition as the Group
has material lease commitments. Other than as noted, the directors
do not expect that any other new standards, interpretations and
amendments which are effective for periods beginning after 1
January 2016 to have a material effect on the Group's future
financial information
Basis of consolidation
Where the company has control over an investee it is classified
as a subsidiary. The company controls an investee if all three of
the following elements are present: power over the investee;
exposure to variable returns from the investee; and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial information presents the results of
the Group as if they formed a single entity. Intercompany
transactions and balances between Group companies are therefore
eliminated in full.
The consolidated financial information incorporates the results
of business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases.
Foreign currency
The financial information of the gaming division, which includes
the Company and some of its subsidiaries is prepared in euros (the
functional currency), which is the currency that best reflects the
economic substance of the underlying events and circumstances
relevant to the gaming division. Transactions and balances in
foreign currencies are converted into euros in accordance with the
principles set forth by IAS 21 ("The Effects of Changes in Foreign
Exchange Rates"). Accordingly, transactions and balances have been
converted into the presentation currency of euros as follows:
-- Monetary assets and liabilities - at the rate
of exchange applicable at the balance sheet
date;
-- Income and expense items - at exchange rates
applicable as of the date of recognition of
those items. Non-monetary items are converted
at the rate of exchange used to convert the
related balance sheet items i.e. at the time
of the transaction. Exchange gains and losses
from the aforementioned conversion are recognised
in the consolidated statement of comprehensive
income.
The financial information of the financial division is prepared
in US Dollars (the functional currency), which is the currency that
best reflects the economic substance of the underlying events and
circumstances relevant to the financial division. The transactions
and balances are converted into the presentation currency of euros
as follows:
-- Assets and liabilities - at the rate of exchange
applicable at the balance sheet date;
-- Income and expense items - at average exchange
rates applicable at the period of recognition
of those items;
-- Equity- at historic rate.
Exchange gains and losses from the aforementioned
conversion are recognised in the foreign exchange
reserve.
Revenue recognition
The Group's principal revenue streams and their respective
accounting treatments are discussed below:
Royalty income
Royalty income relating to licensed technology and the provision
of certain services provided via various distribution channels
(online, mobile or land-based interfaces). Royalty income is based
on the underlying gaming revenue earned by our licensees and is
recognised in the accounting periods in which the gaming
transactions occur.
Trading income
Trading income represents gains (including commission) and
losses arising on client trading activity, primarily in contracts
for difference on shares, indexes, commodities and foreign
exchange. Open client positions are carried at fair market value
and gains and losses arising on this valuation are recognised in
revenue as well as gains and losses realised on positions that have
closed.
Fixed-fee income
Other revenue includes revenue derived from the provision of
certain services and licensed technology for which charges are
based on a fixed-fee and stepped according to the usage of the
service/technology in each accounting period. Income is recognised
over the period of service once the obligations under the contracts
have passed. Where amounts are billed and obligations not met,
revenue is deferred.
Fixed-term arrangements
Other income receivable under fixed-term arrangements is
recognised as revenue over the term of the agreement on a straight
line basis.
Distribution costs
Distribution costs represent the direct costs of the function of
providing services to customers, costs of the development function
and advertising costs.
Share-based payments
Certain employees participate in the Group's share option plans
which commenced with effect from 1 December 2005. The fair value of
the equity settled options granted is charged to the consolidated
statement of comprehensive income on a straight line basis over the
vesting period and the credit is taken to equity, based on the
Group's estimate of shares that will eventually vest. Fair value is
determined by the Black-Scholes and Binomial valuation model. The
share options plan does not have any performance conditions other
than continued service. Where equity settled share options are
settled in cash at the group's discretion the debit is taken to
equity.
The Group has also granted awards to be distributed from the
Group's Employee Benefit Trust. The fair value of these awards is
based on the market price at the date of the grant, some of the
grants have performance conditions.
Income taxes and deferred taxation
Provision for income taxes is calculated in accordance with the
tax legislations and applicable tax rates in force at the balance
sheet date in the countries in which the Group companies are
incorporated.
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the consolidated
balance sheet differs from its tax base, except for differences
arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability
in a transaction which is not a business combination
and at the time of the transaction affects
neither accounting or taxable profit; and
-- investments in subsidiaries and jointly controlled
entities where the Group is able to control
the timing of the reversal of the difference
and it is probable that the difference will
not reverse in the foreseeable future.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the
reporting date and are expected to apply when the deferred tax
liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:
-- the same taxable Group company; or
-- different Group entities which intend either
to settle current tax assets and liabilities
on a net basis, or to realise the assets and
settle the liabilities simultaneously, in
each future period in which significant amounts
of deferred tax assets or liabilities are
expected to be settled or recovered.
Dividend distribution
Final dividends are recorded in the Group's financial
information in the period in which they are approved by the Group's
shareholders. Interim dividends are recognised when paid.
Property, plant and equipment
Property, plant and equipment comprise computers and gaming
machines, buildings and leasehold and buildings improvements,
office furniture and equipment, and motor vehicles and are stated
at cost less accumulated depreciation. Carrying amounts are
reviewed on each balance sheet date for impairment. Where the
carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its
recoverable amount.
Depreciation is calculated to write off the cost of fixed assets
on a straight line basis over the expected useful lives of the
assets concerned. The principal annual rates used for this purpose,
which are consistent with those of the previous years, are:
%
-------------------------------- --------------------------
Computers and gaming machines 20-33
Office furniture and equipment 7-33
Freehold and leasehold 10-20, or over the length
buildings and improvements of the lease
Motor vehicles 15
Subsequent expenditures are included in the asset carrying
amount or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefits will flow to the Group
and the cost of the item can be measured reliably. All other
repairs and maintenance are charged to the income statement during
the financial period in which they are incurred.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount and are included in the consolidated
statement of comprehensive income.
Business combinations
The consolidated financial information incorporate the results
of business combinations using the purchase method. In the
consolidated balance sheet, the acquiree's identifiable assets,
liabilities and contingent liabilities are initially recognised at
their fair values at the acquisition date. The results of acquired
operations are included in the consolidated statement of
comprehensive income from the date on which control is
obtained.
Put/Call options
Where a put/call option is entered into over the non-controlling
interest the ownership risks and rewards of the shares relating to
the option are analysed to determine whether the equity is
attributable to the non-controlling interest or the parent. The
non-controlling interest is recognised if the risks and rewards of
ownership of those shares remain with them.
A financial liability is recorded to reflect the option. All
subsequent changes to the liability (other than the cash
settlement) are recognised in profit or loss.
Where the significant risks and rewards of ownership remain with
the non-controlling interest the non-controlling interest continues
to be recognised and is allocated its share of profits and
losses.
Where the significant risks and rewards of ownership reside with
the controlling interest, the financial liability recognised
offsets the non-controlling interest.
Investments in subsidiary undertakings
Investments in subsidiary undertakings are recognised at cost
less, if any, provision for impairment.
Intangible assets
Intangible assets comprise externally acquired patents, domains
and customer lists. Intangible assets also include internally
generated capitalised software development costs. All such
intangible assets are stated at cost less accumulated amortisation.
Where intangible assets are acquired as part of a business
combination they are recorded initially at their fair value.
Carrying amounts are reviewed on each balance sheet date for
impairment. Where the carrying amount of an asset is greater than
its estimated recoverable amount, it is written down to its
recoverable amount.
Amortisation is calculated at annual rates estimated to write
off the costs of the assets over their expected useful lives and is
charged to operating expenses from the point the asset is brought
into use. The principal annual rates used for this purpose, which
are consistent with those of the previous years, are:
%
---------------------------------- -------------------------
Domain names Nil
Internally generated capitalised
development costs 20-33
Technology IP 13-33
Customer lists In line with projected
cash flows or 7-20
Affiliate contracts 5-12.5
Patents and license Over the expected useful
lives 10-33
Management believes that the useful life of the domain names is
indefinite. Domain names are reviewed for impairment annually.
Expenditure incurred on development activities including the
Group's software development is capitalised only where the
expenditure will lead to new or substantially improved products,
the products are technically and commercially feasible and the
Group has sufficient resources to complete development.
Subsequent expenditure on capitalised intangible assets is
capitalised only where it clearly increases the economic benefits
to be derived from the asset to which it relates. All other
expenditure, including that incurred in order to maintain an
intangible assets current level of performance, is expensed as
incurred.
Goodwill
Goodwill represents the excess of the cost of a business
combination over, in the case of business combinations completed
prior to 1 January 2010, the Group's interest in the fair value of
identifiable assets, liabilities and contingent liabilities
acquired and, in the case of business combinations completed on or
after 1 January 2010, the total acquisition date fair value of the
identifiable assets, liabilities and contingent liabilities
acquired.
For business combinations completed prior to 1 January 2010,
cost comprised the fair value of assets given, and liabilities
assumed, plus any direct costs of acquisition. Changes in the
estimated value of contingent consideration arising on business
combinations completed by this date were treated as an adjustment
to cost and, in consequence, resulted in a change in the carrying
value of goodwill.
For business combinations completed on or after 1 January 2010,
cost comprises the fair value of assets given and liabilities
assumed, plus the amount of any non-controlling interests in the
acquired business. Contingent consideration is included in cost at
its acquisition date fair value and, in the case of contingent
consideration classified as a financial liability, remeasured
subsequently through profit or loss. For combinations completed on
or after 1 January 2010, direct costs of acquisition are recognised
immediately as an expense in the consolidated statement of
comprehensive income, within administrative costs.
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the consolidated
income statement. Goodwill is not amortised and is reviewed for
impairment, annually or more specifically if events or changes in
circumstances indicate that the carrying value may be impaired.
Impairment of non-financial assets
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end. Other non-financial assets are subject to
annual impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where
the carrying value of an asset exceeds its recoverable amount (i.e.
the higher of value in use and fair value less costs to sell), the
asset is written down accordingly.
Where it is not possible to establish the recoverable amount of
an individual asset, the impairment test is carried out on the
asset's cash generating unit (i.e. the lowest group of assets in
which the asset belongs for which there are separately identifiable
cash flows). Goodwill is allocated on initial recognition to each
of the group's cash generating units that are expected to benefit
from the synergies of the combination giving rise to the
goodwill.
Impairment charges are included in the administrative expenses
line item in the consolidated statement of comprehensive income,
except to the extent they reverse gains previously recognised in
the consolidated statement of comprehensive income. An impairment
loss recognised for goodwill is not reversed.
Associates and structured agreements
Where the Group has the power to participate in (but not
control) the financial and operating policy decisions of another
entity, it is classified as an associate or structured agreements,
as appropriate. Associates are initially recognised in the
consolidated statement of financial position at cost. Subsequently
associates are accounted for using the equity method, where the
Group's share of post-acquisition profits and losses and other
comprehensive income is recognised in the consolidated statement of
profit and loss and other comprehensive income (except for losses
in excess of the Group's investment in the associate unless there
is an obligation to make good those losses).
Profits and losses arising on transactions between the Group and
its associates are recognised only to the extent of unrelated
investors' interests in the associate. The investor's share in the
associate's profits and losses resulting from these transactions is
eliminated against the carrying value of the associate.
Any premium paid for an associate above the fair value of the
Group's share of the identifiable assets, liabilities and
contingent liabilities acquired is capitalised and included in the
carrying amount of the associate. Where there is objective evidence
that the investment in an associate has been impaired the carrying
amount of the investment is tested for impairment in the same way
as other non-financial assets.
Joint ventures
The group is a party to a joint arrangement when there is a
contractual arrangement that confers joint control over the
relevant activities of the arrangement to the Group and at least
one other party. Joint control is assessed under the same
principles as control over subsidiaries.
The Group classifies its interests in joint arrangements as
either:
Joint ventures - where the group has rights to only the net
assets of the joint arrangement; or
Joint operations - where the group has rights to both the assets
and obligations for the liabilities of the joint arrangement.
In assessing the classification of interests in joint
arrangements, the Group considers:
-- The structure of the joint arrangement;
-- The legal form of joint arrangements structured
through a separate vehicle;
-- The contractual terms of the joint arrangement
agreement; and
-- Any other facts and circumstances (including
any other contractual arrangements).
The Group accounts for its interests in joint ventures in the
same manner as investments in
Associates (i.e. using the equity method - refer above).
Any premium paid for an investment in a joint venture above the
fair value of the Group's share of the identifiable assets,
liabilities and contingent liabilities acquired is capitalised and
included in the carrying amount of the investment in joint venture.
Where there is objective evidence that the investment in a joint
venture has been impaired the carrying amount of the investment is
tested for impairment in the same way as other non-financial
assets.
The Group accounts for its interests in joint operations by
recognising its share of assets, liabilities, revenues and expenses
in accordance with its contractually conferred rights and
obligations.
Financial assets
The Group classifies its financial assets into one of the
categories discussed below, depending on the purpose for which the
asset was acquired. The Group has not classified any of its
financial assets as held to maturity. The Group does not hold any
financial assets at fair value through profit and loss.
Loans and receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They
arise principally through the provision of services to customers
(e.g. trade receivables), but also incorporate other types of
contractual monetary asset. They are initially recognised at fair
value plus transaction costs that are directly attributable to
their acquisition or issue and are subsequently carried at
amortised cost using the effective interest rate method, less
provision for impairment.
The Group's receivables comprise trade and other receivables,
cash and cash equivalents, and loans to customers in the balance
sheet.
Trade receivables which principally represent amounts due from
licensees are carried at original invoice value less an estimate
made for bad and doubtful debts based on a review of all
outstanding amounts at the year-end. An estimate for doubtful debts
is made when there is objective evidence that the Group will not be
able to collect amounts due according to the original terms of
receivables. Bad debts are written off when identified.
Cash and cash equivalents includes cash in hand, deposits held
at call with banks and other short term highly liquid investments
with original maturities of three months or less. Where cash is on
deposit with maturity dates greater than three months, it is
disclosed within other receivables.
Loans to customers are in respect of formal loan agreements
entered into between the Group and its customers, which are carried
at original advanced value less provision for impairment (or fair
value on inception, if different). They are classified between
current and non-current assets in accordance with the contractual
repayment terms of each loan agreement.
Available-for-sale financial assets
Non-derivative financial assets classified as available-for-sale
comprise the Group's strategic investments in entities not
qualifying as subsidiaries, associates or jointly controlled
entities. They are carried at fair value with changes in fair value
generally recognised in other comprehensive income and accumulated
in the available for sale reserve. In accordance with IAS 39, a
significant or prolonged decline in the fair value of an
available-for-sale financial asset is recognised in the
consolidated statement of comprehensive income.
Purchases and sales of available-for-sale financial assets are
recognised on settlement date with any change in fair value between
trade date and settlement date being recognised in the
available-for-sale reserve. On sale, the amount held in the
available-for-sale reserve associated with that asset is removed
from equity and recognised in the consolidated statement of
comprehensive income.
Financial liabilities
Trade payables and other short-term monetary liabilities are
initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method.
Several of the Group's licensees participate in progressive
jackpot games. Each time a progressive jackpot game is played, a
preset amount is added to a cumulative jackpot for that specific
game. The accrual for the jackpot at the consolidated balance sheet
date is included in progressive jackpot and other operator's
jackpot liabilities.
The Group's liability in connection with client funds includes
customer deposits offset by the fair value of open positions, the
movement on which is recognised through profit or loss. Such open
positions are classified as short term financial derivatives in the
balance sheet.
Liability components of convertible loan notes are measured as
described further below.
Loans and bank borrowings are initially recognised at fair value
net of any transaction costs directly attributable to the issue of
the instrument. Such interest bearing liabilities are subsequently
measured at amortised cost using the effective interest rate
method, which ensures that any interest expense over the period to
repayment is at a constant rate on the balance of the liability
carried in the consolidated balance sheet. Interest expense in this
context includes initial transaction costs and premia payable on
redemption, as well as any interest or coupon payable while the
liability is outstanding.
Fair value measurement hierarchy
IFRS 7 and IFRS 13 requires certain disclosure which require the
classification of financial assets and financial liabilities
measured at fair value using a fair value hierarchy that reflects
the significance of the inputs used in making the fair value
measurement (see note 30). The fair value hierarchy has the
following levels:
a) Quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1);
b) Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. - derived from prices) (Level 2);
and
c) Inputs for the asset or liability that are not based on
observable market data (unobservable inputs) (Level 3).
The level in the fair value hierarchy within which the financial
asset or financial liability is categorized is determined on the
basis of the lowest level input that is significant to the fair
value measurement. Financial assets and financial liabilities are
classified in their entirety into only one of the three levels. The
Group measures its Available-for-sale investments at fair value -
refer to Note 14 for more detailed information in respect of the
fair value measurement.
Share capital
Ordinary shares are classified as equity and are stated at the
proceeds received net of direct issue costs.
Employee Benefit Trust
Consideration paid/received for the purchase/sale of shares
subsequently put in the Employee Benefit Trust is recognised
directly in equity. The cost of treasury shares held is presented
as a separate reserve (the "Employee Benefit Trust reserve"). Any
excess of the consideration received on the sale of treasury shares
over the weighted average cost of the shares sold is credited to
retained earnings.
Share buy back
The Group cannot hold treasury shares under the Group's
memorandum and article of association and therefore the shares are
cancelled after the buy back.
Convertible bond
The proceeds received on issue of the Group's convertible bond
are allocated into their liability and equity components. The
amount initially attributed to the debt component equals the
discounted cash flows using a market rate of interest that would be
payable on a similar debt instrument that does not include an
option to convert. Subsequently, the debt component is accounted
for as a financial liability measured at amortised cost until
extinguished on conversion or maturity of the bond, where the
option meets the definition of an equity instrument. The remainder
of the proceeds is allocated to the conversion option and is
recognised in the "Convertible bond option reserve" within
shareholders' equity.
Long term liabilities
Long term liabilities are those liabilities that are due for
repayment or settlement in more than twelve months from balance
sheet date.
Provisions
Provisions, which are liabilities of uncertain timing or amount,
are recognised when the Group has a present obligation as a result
of past events, if it is probable that an outflow of funds will be
required to settle the obligation and a reliable estimate of the
amount of the obligation can be made.
Leases
Where substantially all of the risks and rewards incidental to
ownership are not transferred to the Group (an "operating lease"),
the total rentals payable under the lease are charged to the
consolidated statement of comprehensive income on a straight-line
basis over the lease term. The aggregate benefit of lease
incentives is recognised as a reduction of the rental expense over
the lease term on a straight-line basis.
Non-controlling interests
Non-controlling interest is recognised at the present ownership
instruments' proportionate share in the recognised amounts of the
acquiree's identifiable net assets. The total comprehensive income
of non-wholly owned subsidiaries is attributed to owners of the
parent and to the non-controlling interests in proportion to their
relative ownership interests.
Adjusted results
The directors believe that in order to best represent the
trading performance and results of the Group, the reported numbers
should exclude certain non-cash and one-off items including the
below. Accordingly, these are the key performance metrics used by
the Board when assessing the Group's financial performance. Such
exclusions include:
-- Material non-cash items, e.g. amortisation
of intangibles on acquisition, change in
fair value of available-for-sale investments
in the income statement and Employee Share
Option Plan expenses.
-- Material one-off items, e.g. gain on sale
of investment in associates, professional
services cost related to acquisitions, irrecoverable
deposit and professional fees on abandoned
acquisitions and other exceptional projects.
Underlying adjusted results excludes the following items in
order to present a more accurate 'like for like' comparison over
the comparable period:
-- The impact of acquisitions made in the period
or in the comparable period; and
-- Specific material agreements, adjustments
to previous years or currency fluctuations
affecting the results in the period and
the comparable period
A full reconciliation of adjustments is included in note 5.
NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial information in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial information and the
reported amounts of revenues and expenses during the reporting
period. Although these estimates are based on management's best
knowledge of current events and actions, actual results ultimately
may differ from those estimates.
The areas requiring the use of estimates and critical judgments
that may potentially have a significant impact on the Group's
earnings and financial position are detailed below.
Estimates and assumptions
Impairment of goodwill and other intangibles
The Group is required to test, on an annual basis, whether
goodwill, intangible assets not yet in use and indefinite life
assets have suffered any impairment. The Group is required to test
other intangibles if events of changes in circumstances indicated
that their carrying amount may not be recoverable. The recoverable
amount is determined based on value in use calculations. The use of
this method requires the estimation of future cash flows and the
choice of a discount rate in order to calculate the present value
of the cash flows. Such estimates are based on management's
experience of the business, but actual outcomes may vary. More
details including carrying values are included in
Note 12.
Amortisation of development costs and other intangible assets
and the useful life of property, plant and equipment
Intangible assets and property, plant and equipment are
amortised or depreciated over their useful lives. Useful lives are
based on management's estimates of the period that the assets will
generate revenue, which are periodically reviewed for continued
appropriateness.
Changes to estimates can result in significant variations in the
amounts charged to the consolidated statement of comprehensive
income in specific periods. More details including carrying values
are included in Notes 11 and 12.
Compliance risk- Legal, regulatory and taxation
Legal proceedings and contingent liabilities
Management regularly monitors the key risks affecting the Group,
including the regulatory environment in which the Group operates. A
provision will be made where there is a present obligation from a
past event, a transfer of economic benefits is probable and the
amount of costs of the transfer can be estimated reliably. In
instances where the criteria are not met, a contingent liability
may be disclosed in the notes to the financial information. More
details are included in Note 31.
Income taxes
The Group is subject to income tax in jurisdictions in which its
companies are incorporated and registered and judgment is required
in determining the provision for income taxes. The Group is basing
its tax provisions on current (and enacted but not yet implemented)
tax rules and practices, together with advice received from
professional advisers, and believes that its accruals for tax
liabilities are adequate for all open enquiry years based on its
assessment of many factors including past experience and
interpretations of tax law. The Group constantly monitors changes
in legislation and update its accruals accordingly. The principal
risks relating to the Group's tax liabilities, and the
sustainability of the underlying effective tax rate, arise from
domestic and international tax laws and practices in the e-commerce
environment continuing to evolve, including the corporate tax rates
in jurisdictions where the Group has a significant asset or people
presence. More details are included in Note 8.
Regulatory
The Group's subsidiary, Safecap investments Limited ("Safecap"),
is primarily regulated by the Cyprus Securities and Exchange
Commission. The regulatory environment is regularly changing and
imposes significant demands of the resources of the subsidiary. As
the subsidiary's activities expand, offering new products and
penetrating new markets, these regulatory demands will inevitably
increase. The increasing complexity of the Group's operations
require training and recruitment be tailored to meet these
regulatory demands and the costs of compliance are expected to
increase.
In addition to the above, Safecap manages its capital resources
on the basis of capital adequacy requirements as prescribed it
regulator, together with its own assessment of other business risks
and sensitivities which may impact the business. Capital adequacy
requirements are monitored on a real-time basis, including a
'buffer' which is deemed sufficient by management to ensure that
capital requirements are not breached at any time.
Structured agreements
For all arrangements structured in separate vehicles the Group
must assess the substance of the arrangement in determining whether
it meets the definition to be classified as an associate or joint
venture. Factors the group must consider include:
-- Structure
-- Legal form
-- Contractual agreement
-- Other facts and circumstances
Upon consideration of these factors, the Group has determined
that all of its arrangements structured through separate vehicles
give it significant influence but not joint control rights to the
net assets and are therefore classified as associates.
Share-based payments
The Group has a share-based remuneration scheme for employees.
The fair value of share options is estimated by using the
Black-Scholes and Binomial models, on the date of grant based on
certain assumptions. Those assumptions are described in Note 10 and
include, among others, the dividend growth rate, expected share
price volatility, expected life of the options and number of
options expected to vest.
Determination of fair value of intangible assets acquired on
business combinations
The fair value of the intangible assets acquired is based on the
discounted cash flows expected to be derived from the use of the
asset. Further information in relation to the determination of fair
value of intangible assets acquired is given in Notes 26 and
27.
Determination of the fair value of contingent consideration and
redemption liability
The fair value of contingent consideration and redemption
liability is based on the probability of expected cash flow
outcomes and the assessment of present values using appropriate
discount rates. Recognition of put/call options over
non-controlling interest is based on consideration of the ownership
risks and rewards of the shares relating to the option to determine
whether the equity is attributable to the non-controlling interest
or the parent. Further information in relation to the determination
of the fair value of contingent consideration is given in Notes 26
and 27.
NOTE 4 - SEGMENT INFORMATION
The Group's reportable segments are strategic business units
that offer different products and services.
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision maker has been identified as the
management team including the Chief Executive Officer and the Chief
Financial Officer.
The operating segments identified are:
-- Gaming: including Casino, Services, Sport,
Bingo, Poker and Land-based
-- Financial: including B2C and B2B CFD
The Group-wide profit measures are adjusted EBITDA and adjusted
net profit (see Note 5). Management believes the adjusted profit
measures represent more closely the underlying trading performance
of the business. No other differences exist between the basis of
preparation of the performance measures used by management and the
figures in the Group financial information.
There is no allocation of operating expenses, profit measures,
assets and liabilities to individual products within the
segments.
Year ended 31 December 2016
Land-based Total Total
Casino Services Sport Bingo Poker Other Gaming Financial Consolidated
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------- --------- ---------- -------- ----------- -------- -------- -------- ---------- ---------- -------------
Total
revenue 354,595 151,557 30,915 57,048 17,846 9,092 21,913 642,966 65,592 708,558
adjusted
EBITDA 286,863 15,370 302,233
adjusted net
profit 190,338 16,883 207,221
Total assets 1,881,342 194,904 2,076,246
Total
liabilities 797,588 178,939 976,527
Year ended 31 December 2015
Land- Total Total
Casino Services Sport based Bingo Poker Other Gaming Financial Consolidated
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
------------- --------- ---------- -------- -------- -------- -------- -------- ----------- ------------- ----------------
Total
revenue 308,712 155,625 32,206 29,749 20,468 11,241 12,079 570,080 60,006 630,086
adjusted
EBITDA 236,022 15,866 251,888
adjusted net
profit 192,176 14,233 206,409
Total assets 1,911,203 161,050 2,072,253
Total
liabilities 672,164 139,394 811,558
In 2016, there were two licensees (2015: Two licensees) who
individually accounted for more than 10% of the total gaming
revenue and the total revenue of the Group. Aggregate revenue from
these licensees totaled EUR255.4 million (2015: EUR192.3
million).
Geographical analysis of revenues by jurisdiction of gaming
license
Analysis by geographical regions is made according to the
jurisdiction of the gaming license of the licensee. This does not
reflect the region of the end users of the Group's licensees whose
locations are worldwide.
2016 2015
EUR'000 EUR'000
--------------- ------------ -------------
Philippines 257,002 199,608
UK 188,847 179,510
Rest of World 81,595 64,141
Antigua 28,891 53,512
Gibraltar 25,410 30,285
Malta 25,341 10,798
Italy 17,132 15,591
Spain 12,654 6,209
Curacao 6,094 10,426
642,966 570,080
------------ -------------
Geographical analysis of non-current assets
The Group's information about its non-current assets by location
of the domicile are detailed below:
2016 2015*
EUR'000 EUR'000
------------------------ ----------------- -------------------
British Virgin Islands 560,528 571,446
Isle of Man 208,603 192,452
Austria 162,097 -
UK 108,915 90,550
Sweden 76,670 24,714
Cyprus 61,690 53,560
Denmark 51,583 -
Luxemburg 51,352 65,874
Gibraltar 32,322 37,032
Netherland 19,159 18,579
Latvia 13,947 11,243
Rest of World 36,827 46,467
1,383,693 1,111,917
----------------- -------------------
The Group's information about its non-current assets by location
of the assets are detailed below:
2016 2015*
EUR'000 EUR'000
------------------------ -------------------- ------------------
British Virgin Islands 552,766 571,447
UK 349,190 316,565
Austria 162,097 -
Sweden 76,670 24,714
Cyprus 50,018 53,560
Gibraltar 32,322 37,032
Denmark 37,261 -
Isle of Man 27,664 32,311
Netherland 15,959 18,579
Latvia 13,947 11,243
Malta 12,601 -
Philippines 6,711 12,929
Rest of World 46,487 33,537
1,383,693 1,111,917
-------------------- ------------------
*2015 comparative numbers were adjusted to reflect the location
of intangible assets based on the location of the underlying
acquired businesses rather than the location of the acquirer.
NOTE 5 - ADJUSTED ITEMS
The following tables give a full reconciliation between adjusted
and actual results:
2016 2015
EUR'000 EUR'000
---------------------------------------- ------------------ ----------------
Distribution costs before depreciation
and amortisation 345,934 331,705
Employee stock option expenses (5,144) (3,914)
Adjusted distribution costs before
depreciation and amortisation 340,790 327,791
------------------ ----------------
Administrative expenses before
depreciation and amortisation 70,772 64,370
Employee stock option expenses (1,796) (990)
Professional fees on acquisitions (3,441) (6,181)
Irrecoverable deposit and professional
fees on abandoned acquisitions - (6,792)
Total adjusted items (5,237) (13,963)
------------------ ----------------
Adjusted administrative expenses
before depreciation and amortisation 65,535 50,407
------------------ ----------------
Depreciation - distribution costs 17,887 12,653
Depreciation - administrative
costs 2,205 1,925
Amortisation - distribution costs 75,173 69,610
Impairment 12,335 1,210
------------------ ----------------
Total depreciation and amortization 107,600 85,398
Amortisation of intangibles on
acquisitions - distribution costs (44,318) (41,751)
Impairment (12,335) -
------------------ ----------------
Adjusted depreciation and amortisation 50,947 43,647
------------------ ----------------
Revenue 708,558 630,086
Constant currency impact 45,608 -
------------------ ------------------
Revenue on constant currency
basis 754,166 630,086
------------------ ------------------
Revenue related to acquisitions
on a constant currency basis (113,311) (62,881)
Underlying revenue 640,855 567,205
------------------ ------------------
EBITDA 291,852 234,011
Employee stock option expenses 6,940 4,904
Professional expenses on acquisitions 3,441 6,181
Irrecoverable deposit and professional
fees on abandoned acquisitions - 6,792
------------------ ------------------
Adjusted EBITDA 302,233 251,888
------------------ ------------------
Constant currency impact 29,353 -
------------------ ------------------
Adjusted EBITDA on constant currency
basis 331,586 251,888
------------------ ------------------
EBITDA related to acquisitions
on constant currency basis (29,774) (16,774)
Underlying adjusted EBITDA 301,812 235,114
------------------ ------------------
Profit for the year- attributable
to owners of parent 193,030 135,810
Amortisation of intangibles on
acquisitions 44,318 41,751
Impairments 12,335 -
Profit on disposal of investment
in associates (64,459) -
Employee stock option expenses 6,940 4,904
Professional expenses on acquisitions 3,441 6,181
Irrecoverable deposit and professional
fees on abandoned acquisitions - 6,792
Non-cash accrued bond interest 9,802 9,388
Movement in deferred and contingent
consideration 832 1,088
Adjusted profit for the year
- attributable to owners of the
parent 206,239 205,914
------------------ ------------------
Constant currency impact 72,110 (10,578)
------------------ ------------------
Adjusted net loss/(profit) related
to acquisitions on constant currency
basis 278,349 195,336
------------------ ------------------
Adjusted net profit related to
acquisitions on constant currency
basis (6,673) (11,333)
Underlying adjusted profit for
the year - attributable to owners
of the parent 271,676 184,003
------------------ ------------------
NOTE 6 - EBITDA
EBITDA is stated after charging:
2016 2015
EUR'000 EUR'000
----------------------------------- -------- --------
Directors compensation
Short-term benefits of directors 2,231 2,359
Share-based benefits of directors 297 444
Bonuses to executive directors 2,071 1,942
4,599 4,745
-------- --------
Auditor's remuneration
Group audit and parent company
(BDO) 362 362
Audit of subsidiaries (BDO) 599 544
Audit of subsidiaries (non-BDO) 207 194
Total Audit fees 1,168 1,100
------ -------------
Non-audit services provided by
parent company auditor and its
international member firms
Corporate finance services related
to acquisitions 320 883
Other non-audit services 133 60
Tax advisory services 418 213
Total Non-audit fees 871 1,156
------ -------------
Development costs (net of capitalised
development costs of EUR35.5
million (2015: EUR29.7 million) 88,036 80,988
------- -------
NOTE 7 - FINANCING INCOME AND COSTS
2016 2015
EUR'000 EUR'000
----------------------------------------------------- ----------------- -----------------
A. Finance income
Interest received 1,376 1,741
Return on available-for-sale investments 11,894 2,311
Exchange differences - 10,579
13,270 14,631
----------------- -----------------
B. Finance cost
Finance cost - movement in contingent consideration (832) (1,088)
Exchange differences (44,696) -
Notional interest expenses on convertible bonds (9,802) (9,388)
Nominal interest expenses on convertible bonds (1,485) (1,485)
Bank charges and interest paid (4,304) (3,705)
(61,119) (15,666)
----------------- -----------------
Net financing cost (47,849) (1,035)
----------------- -----------------
NOTE 8 - TAXATION
2016 2015
EUR'000 EUR'000
------------------------------------- -------------- --------------
Current income tax
Income tax on profits of subsidiary
operations 9,652 7,759
Deferred tax (Note 24) (3,349) (2,113)
-------------- --------------
Total tax charge 6,303 5,646
-------------- --------------
The tax charge for the year can be reconciled to accounting
profit as follows:
2016 2015
EUR'000 EUR'000
-------------------------------- ------------- -------------
Profit before taxation 200,315 141,951
Tax at effective rate in Isle - -
of Man
Higher rates of current income
tax in overseas jurisdictions 6,303 5,646
The group is tax registered, managed and controlled from the
Isle of Man where the corporate tax rate is set to zero. The
majority of profits arise in Isle of Man and British Virgin
Islands, in which the corporate tax rate is set to zero as well.
The Group's subsidiaries are located in different jurisdictions.
The subsidiaries are taxed on their residual profit.
The deferred tax is due to the reversal of temporary differences
arising on the identification of the intangible assets acquired in
the current and prior years.
NOTE 9 - EARNINGS PER SHARE
Earnings per share have been calculated using the weighted
average number of shares in issue during the relevant financial
periods. The weighted average number of equity shares in issue and
the earnings, being profit after tax is as follows:
2016 2015
Actual Adjusted Actual Adjusted
EUR'000 EUR'000 EUR'000 EUR'000
----------------------------- -------- --------- -------- ---------
Profit for the year
attributable to owners
of the parent 193,030 206,239 135,810 205,914
Add interest on convertible
bond 11,287 1,485 10,873 1,485
-------- --------- -------- ---------
Earnings used in diluted
EPS 204,317 207,724 146,683 207,399
Basic (cents) 61.4 65.7 44.5 67.5
Diluted (cents) 58.8 59.8 43.7 61.8
2016 2015
Actual Adjusted Actual* Adjusted*
Number Number Number Number
Denominator - basic
Weighted average number of equity shares 314,130,671 314,130,671 305,086,266 305,086,266
Denominator - diluted
Weighted average number of equity shares 314,130,671 314,130,671 305,086,266 305,086,266
Weighted average number of option shares 2,326,838 2,326,838 411,618 411,618
Weighted average number of convertible bonds 31,059,798 31,059,798 30,170,356 30,170,356
------------ ------------ -------------- --------------
Weighted average number of shares 347,517,307 347,517,307 335,668,240 335,668,240
As at 31 December 2016, none (2015: none) of the outstanding
share options were included in the calculation of diluted EPS as
their exercise price is greater than the weighted average share
price during the year (i.e. they are out of the money) and
therefore it would not be advantageous for the holders to exercise
those options. The total number of options in issue is disclosed in
Note 10.
* Earnings used in diluted EPS and the weighted average number
of shares used in diluted EPS for 2015 were adjusted to reflect the
impact of the convertible bonds.
NOTE 10 - EMPLOYEE BENEFITS
Total staff costs comprise the following:
2016 2015
EUR'000 EUR'000
------------------------------- -------- --------
Salaries and employee-related
costs 234,410 219,676
Employee stock option costs 6,940 4,904
241,350 224,580
-------- --------
Average number of employees:
Distribution 4,782 4,837
General and administration 472 324
5,254 5,161
-------- --------
The Group has the following employee share option plans ("ESOP")
for the granting of non-transferable options to certain
employees:
-- Playtech 2005 Share Option Plan ("the Plan")
and Israeli plans, options granted under the
plans vest on the first day on which they
become exercisable which is typically between
one to four years after grant date.
-- GTS 2010 Company Share Option Plan ("CSOP"),
options granted under the plan vest on the
first day on which they become exercisable
which is three years after grant date.
-- Long Term Incentive Plan 2012 ("LTIP"), awards
(options, conditional awards or a forfeitable
share award) granted under the plan vest on
the first day on which they become exercisable
which is typically between eighteen to thirty
six months after grant date.
The overall term of the ESOP is five to ten years. These options
are settled in equity once exercised. Option prices are either
denominated in USD or GBP, depending on the option grant terms.
During 2012, the Group amended some of the rules of the equity
based Plan. The amendments allow the Group, at the employees
consent, to settle fully vested and exercisable options for cash
instead of issuing shares.
The Group granted 203,487 and 1,500,529 nil cost awards in
December 2015 and December 2016 respectively.
At 31 December 2016, options under these schemes were
outstanding over:
2016 2015
Number Number
----------------------------------- ---------- --------
Shares vested between 21 June
2007 and 21 June 2009 at an
exercise price of $5.75 per
share - 1,667
Shares vested between 21 June
2007 and 21 June 2009 at an
exercise price of GBP3.16
per share - 10,000
Shares vested between 11 December
2007 and 11 December 2009
at an exercise price of GBP2.21
per share - 5,334
Shares vested between 18 June
2008 and 18 June 2010 at an
exercise price of GBP3.96
per share 3,750 6,267
Shares vested between 31 December
2008 and 31 December 2010
at an exercise price of $7.68
per share - 3,000
Shares vested between 31 December
2008 and 31 December 2010
at an exercise price of GBP3.86
per share 5,000 7,000
Shares vested between 25 April
2009 and 25 April 2012 at
an exercise price of GBP4.35
per share 10,000 10,000
Shares vested between 28 November
2009 and 28 November 2012
at an exercise price of GBP3.20
per share 29,952 37,518
Shares vested on 22 May 2012
at an exercise price of GBP4.155
per share 20,000 20,000
Shares vested between 18 April
2012 and 18 April 2013 at
an exercise price of GBP5.12
per share 23,200 23,200
Shares vested between 26 August
2012 and 26 August 2013 at
an exercise price of GBP4.16
per share 35,811 37,111
Shares vested on 10 March
2015 at an exercise price
of GBP3.5225 per share 49,000 73,000
Shares vested on 23 June 2016
at an exercise price of GBP3.48
per share - 13,000
Shares will vest between 17
June 2016 and 17 June 2017
at nil cost 28,713 57,425
Shares vested on 21 December
2016 at nil cost 64,935 99,291
Shares will vest on 1 March
2018 at nil cost 146,919 146,919
Shares will vest between 1
September 2016 and 1 March
2018 at nil cost 383,071 56,568
Shares will vest on 1 March 246,728 -
2019 at nil cost
Shares will vest between 1 677,338 -
September 2017 and 1 March
2019 at nil cost
Shares will vest on 21 December 111,720 -
2019 at nil cost
---------- --------
1,836,137 607,300
---------- --------
Total number of shares exercisable as of 31 December 2016 is
376,213 (2015: 247,097).
The following table illustrates the number and weighted average
exercise prices of shares options for the ESOP.
2016 2015 2016 2015
Number Number Weighted Weighted
of options of options average average
exercise exercise
price price
----------------- ------------ ------------ ---------- ----------
Outstanding at
the beginning $6.99, $5.27,
of the year 607,300 1,209,873 GBP1.52 GBP3.64
----------------- ------------ ------------ ---------- ----------
Granted 1,500,529 360,203 nil nil
----------------- ------------ ------------ ---------- ----------
Forfeited (13,215) (25,041) nil GBP4.44
----------------- ------------ ------------ ---------- ----------
$6.99, $4.99,
Exercised (258,477) (937,735) GBP0.87 GBP3.64
----------------- ------------ ------------ ---------- ----------
Outstanding at
the end of the $6.99,
year 1,836,137 607,300 GBP0.38 GBP1.52
----------------- ------------ ------------ ---------- ----------
Included in the number options exercised during the year is
14,061 options (2015: nil) where a cash alternative was
received.
The weighted average share price at the date of exercise of
options was GBP8.718 (2015: GBP8.036).
Share options outstanding at the end of the year have the
following exercise prices:
Expiry date Exercise price 2016 2015
Number Number
----------------------- ---------------------- ---------- --------
Between 6 February Between $4.35 and
2016 and 11 December $5.75 and between
2016 GBP1.72 and GBP3.16 - 17,001
Between 15 May Between $7.19 and
2017 and 31 December $7.79 and between
2017 GBP3.39 and GBP3.96 8,750 16,267
Between 25 April
2018 and 31 December $4.35 and between
2018 GBP3.17 and GBP5.31 39,952 47,518
Between 22 May
2019 and 6 November Between GBP3.70
2019 and GBP4.16 20,000 20,000
Between 18 April
2020 and 26 August Between GBP4.16
2020 and GBP5.12 59,011 60,311
Between 10 March
2021 and 16 December Between GBP2.30
2021 and GBP3.52 49,000 73,000
21 June 2022 GBP3.48 - 13,000
17 December 2024 Nil 93,648 156,716
17 December 2025 Nil 529,990 203,487
Between 21 December Nil 1,035,786 -
2026 and 31 December
2026
1,836,137 607,300
---------- --------
Markets ESOP
Options granted under TradeFX 2009 Global Share Option Plan
("TradeFX Plan") vest on the first day on which they become
exercisable which is typically between one to four years after
grant date.
The overall term of the ESOP is ten years. These options are
settled in equity once exercised. Option prices are either
denominated in USD, depending on the option grant terms.
Total number of share options exercisable as of 31 December 2016
is 55,734 (2015: 10,126).
2016 2015
Number Number
----------------------------------------------------------------------------------------- -------------- -----------
Shares vested between 1 June 2011 and 31 December 2016 at an exercise price of $4 per
share 3,800 4,089
Shares vested between 1 November 2013 and 31 December 2016 at an exercise price of $12
per
share 4,338 5,537
Shares vested between 1 December 2015 and 31 December 2016 at an exercise price of $70
per
share 47,596 500
-------------- -----------
55,734 10,126
Shares vesting between 1 January 2016 and 31 August 2016 at an exercise price of $4 per
share - 2,749
Shares vesting between 1 January 2016 and 31 May 2017 at an exercise price of $12 per
share 612 10,838
Shares vesting between 1 January 2017 and 31 August 2020 at an exercise price of $70 per
share 103,715 145,186
-------------- -----------
104,327 158,773
160,061 168,899
============== ===========
The following table illustrates the number and weighted average
exercise prices of shares options for the ESOP:
2016 2015 2016 2015
Number of Number Weighted Weighted average exercise price
options of options average
exercise
price
----------------- ---------- ------------ ---------- --------------------------------
Outstanding at
the beginning
of the year 168,899 60,300 $ 60.7 $ 16.58
Granted through
the year 11,000 139,486 $ 70 $ 70
Forfeited (12,410) (29,838) $ 36.75 $ 1.33
Exercised (7,428) (1,049) $ 9.17 $ 4
---------- ------------ ---------- --------------------------------
Outstanding at
the end of the
year 160,061 168,899 $ 66.64 $ 60.7
Included in the number of options exercised during the year is
1,049 (2014: 25) where a cash alternative was received.
Share options outstanding at the end of the year have the
following exercise prices:
2016 2015
Number Number
----------------------------------------------------------------------------------------------- -------- --------
Share options to be expired between 1 June 2020 and 1 August 2022 at an exercise price of
$4 per share 3,800 6,838
Share options to be expired between 1 September 2022 and 1 November 2023 at an exercise price
of $12 per share 4,950 16,375
Share options to be expired between 1 December 2024 and 10 March 2025 at an exercise price
of $70 per share 151,311 145,686
-------- --------
160,061 168,899
NOTE 11 - PROPERTY, PLANT AND EQUIPMENT
Computers Office Motor Freehold Total
and gaming furniture vehicles and leasehold
machines and equipment buildings
and improvements
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
--------------- ------------ --------------- ---------- ------------------ --------
Cost
At 1 January
2015 54,857 5,721 456 15,341 76,375
Additions 13,435 2,490 202 11,200 27,327
Acquired
through
business
combinations 621 435 - 66 1,122
Disposals (1,723) (190) (144) (9) (2,066)
Foreign
exchange
Movements 1 3 - - 4
------------ --------------- ---------- ------------------ --------
At 31
December
2015 67,191 8,459 514 26,598 102,762
------------ --------------- ---------- ------------------ --------
Accumulated
depreciation
At 1 January
2015 33,617 1,581 180 2,678 38,056
Charge 10,770 1,856 83 1,869 14,578
Disposals (976) (172) (61) - (1,209)
------------ --------------- ---------- ------------------ --------
At 31
December
2015 43,411 3,265 202 4,547 51,425
------------ --------------- ---------- ------------------ --------
Net Book
Value
------------ --------------- ---------- ------------------ --------
At 31
December
2015 23,780 5,194 312 22,051 51,337
------------ --------------- ---------- ------------------ --------
At 31
December
2014 21,240 4,140 276 12,663 38,319
------------ --------------- ---------- ------------------ --------
Computers Office Motor Buildings Total
and gaming furniture vehicles and leasehold
machines and equipment buildings
and improvements
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
--------------- ------------ --------------- ---------- ------------------ --------
Cost
At 1 January
2016 67,191 8,459 514 26,598 102,762
Additions 17,816 2,560 284 5,564 26,224
Acquired
through
business
combinations 14,392 1,049 - 44 15,485
Disposals (246) (126) (92) (169) (633)
Foreign
exchange
Movements 53 23 1 1 78
------------ --------------- ---------- ------------------ --------
At 31
December
2016 99,206 11,965 707 32,038 143,916
------------ --------------- ---------- ------------------ --------
Accumulated
depreciation
At 1 January
2016 43,411 3,265 202 4,547 51,425
Charge 15,419 1,922 136 2,615 20,092
Disposals (206) (60) (64) (199) (529)
Foreign
exchange
Movements 27 8 - - 35
At 31
December
2016 58,651 5,135 274 6,963 71,023
------------ --------------- ---------- ------------------ --------
Net Book
Value
------------ --------------- ---------- ------------------ --------
At 31
December
2016 40,555 6,830 433 25,075 72,893
------------ --------------- ---------- ------------------ --------
NOTE 12 - INTANGIBLE ASSETS
Patents, Technology Development Customer Goodwill Total
Domain IP costs List
names & Affiliates
and license
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
---------------- ------------- ----------- ------------ -------------- --------- ----------
Cost
As of 1
January
2015 23,168 26,661 90,145 226,840 205,097 571,911
Additions 4,331 - 31,357 - - 35,688
Assets
acquired
on business
combinations 35,059 16,416 2,177 81,536 261,834 397,022
Impairment
of intangible
assets - - (1,210) - - (1,210)
Foreign
exchange
Movements 333 105 41 775 2,282 3,536
As of 31
December,
2015 62,891 43,182 122,510 309,151 469,213 1,006,947
------------- ----------- ------------ -------------- --------- ----------
Accumulated
amortisation
As of 1
January
2015 8,674 13,149 44,346 124,597 - 190,766
Provision 5,713 3,930 20,249 35,448 - 65,340
Foreign
exchange
Movements (6) (25) 30 (30) - (31)
As of 31
December
2015 14,381 17,054 64,625 160,015 - 256,075
------------- ----------- ------------ -------------- --------- ----------
Net Book
Value
------------- ----------- ------------ -------------- --------- ----------
As of 31
December
2015 48,510 26,128 57,885 149,136 469,213 750,872
------------- ----------- ------------ -------------- --------- ----------
As of 31
December
2014 14,494 13,512 45,799 102,243 205,097 381,145
------------- ----------- ------------ -------------- --------- ----------
Patents, Technology Development Customer Goodwill Total
Domain IP costs List
names & Affiliates
& License
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
---------------- ----------- ----------- ------------ -------------- --------- ----------
Cost
As of 1
January
2016 62,891 43,182 122,510 309,151 469,213 1,006,947
Additions 1,305 11,714 35,649 - - 48,668
Disposals - - - - (5,312) (5,312)
Assets
acquired
on business
combinations 13,536 38,560 - 79,261 158,992 290,349
Impairment
of intangible
asset - - - - (12,335) (12,335)
Foreign
exchange
Movements 1,391 527 574 3,344 9,699 15,535
As of 31
December,
2016 79,123 93,983 158,733 391,756 620,257 1,343,852
----------- ----------- ------------ -------------- --------- ----------
Accumulated
amortisation
As of 1
January
2016 14,381 17,054 64,625 160,015 - 256,075
Provision 5,901 8,872 22,818 34,273 - 71,864
Foreign
exchange
Movements 157 167 214 740 - 1,278
As of 31
December
2016 20,439 26,093 87,657 195,028 - 329,217
----------- ----------- ------------ -------------- --------- ----------
Net Book
Value
----------- ----------- ------------ -------------- --------- ----------
As of 31
December
2016 58,684 67,890 71,076 196,728 620,257 1,014,635
----------- ----------- ------------ -------------- --------- ----------
The Group amortisation charge of EUR75.2 million (2015: EUR69.9
million) also includes EUR3.3 million (2015: EUR4.2 million) in
relation to the release of the buyout of reseller agreement (note
17).
In accordance with IAS 36, the Group regularly monitors the
carrying value of its intangible assets, including goodwill.
Goodwill is allocated to eleven (2015: fourteen) cash generating
units ("CGU"). Following the restructure of the Sports division,
the previous CGU's of Mobenga, Geneity and other acquisitions were
combined to form the Sports CGU in accordance with IAS 36.
Management determines which of those CGU's are significant in
relation to the total carrying value of goodwill as follows:
-- Carrying value exceeds 10% of total goodwill;
or
-- Acquisition during the year; or
-- Contingent consideration exists at the balance
sheet date.
Based on the above criteria in respect of the goodwill,
management has concluded that the following are significant:
-- Markets, with a carrying value of $265.3,
EUR252.3 million (2015: $265.3 million, EUR240.6
million)
-- Services, with a carrying value of EUR100.0
million (2015: EUR108.6 million);
-- BGT, with a carrying value of EUR88.3 million
(2015: nil);
-- Quickspin, with a carrying value of EUR26.8
million (2015: nil);
-- CFH, with a carrying value of EUR23.9 million
(2015: nil);
-- Casino product, with a carrying value of
EUR34.0 million (2015: EUR34.0 million);
and
-- ECM systems, with a carrying value of EUR9.4
million (2015: nil);
The recoverable amounts of all the CGUs have been determined
from value in use calculations based on cash flow projections from
formally approved budgets covering one year period to 31 December
2017 in addition to 2-3 years forecasts. Beyond this period,
management has applied an annual growth rate of between 2% and 5%
based on the underlying economic environment in which the CGU
operates. Management has applied a discount rates to the cash flow
projections between 11.9% and 13.9% (2015: between 12.0% and
18.4%).
The results of the review indicated that there was an impairment
of goodwill of 3 CGU's in a total amount of EUR12.3 million at 31
December 2016, which has been charged to the income statement.
Management has also reviewed the key assumptions and forecasts for
the customer lists, brands and affiliates, applying the above same
key assumptions. The results of the reviews indicated that except
the above, there was no impairment of the intangible assets at 31
December 2016.
NOTE 13 - INVESTMENTS IN EQUITY ACCOUNTED ASSOCIATES & JOINT
VENTURES
2016 2015
EUR'000 EUR'000
---------------------------------------- -------- --------
Investment in joint ventures comprise:
A. Investment in International
Terminal Leasing 2,091 3,388
Investment in equity accounted
associates:
B. Investment in associates 11,612 17,254
C. Investment in structured agreements 25,323 31,136
-------- --------
39,026 51,778
-------- --------
A. Investment in International Terminal Leasing
On 8 March 2011, the Group entered into an agreement with
Scientific Games to form a partnership called International
Terminal Leasing ("ITL"), which relates to the strategic
partnership with Scientific Games Corporation.
The Group's future profit share from this joint venture varies
depending on the commercial arrangements in which ITL and its
partners enter into with third parties. However, the group's share
of profit is expected to be between 20%-50%.
The Group received a return on investments of EUR1.4 million
during the year (2015: EUR2.4 million).
Movements in the carrying value of the investment during the
year are as follows:
EUR'000
-------------------------------------------- --------
Investment in joint venture at 1 January
2016 3,388
Share of profit in joint venture 146
Return of investment (1,443)
--------
Investment in joint venture at 31 December
2016 2,091
--------
B. Investment in associates
Investment in BGO
In August 2014, the Group acquired 33.33% of the shares of BGO
Limited for a total consideration of GBP10 million (EUR12.5
million). In 2015 the Group invested additional GBP0.7 million
(EUR0.9 million).
The purpose of this investment is to further enhance BGO gaming
applications on the Group's platform and to enable BGO to further
invest in its successful brands and grow into international
markets.
Other individually immaterial investments
During the year the Group paid EUR0.2 million additional
consideration to non-controlling investments acquired in previous
years (2015: EUR6.6 million and EUR0.3 million additional
consideration to non-controlling investments).
Total associates:
EUR'000
---------------------------------------------- --------
Investment in associates at 1 January
2016 17,254
Investment in associates in the year 220
Investment in associate acquired on business
combination 5
Share of loss (693)
Impairment of investment in associate (1,586)
Subsidiary acquired in steps (note 26e) (3,588)
Investment in associates at 31 December
2016 11,612
--------
Aggregated amounts relating to BGO Limited are as follows:
2016 2015
EUR'000 EUR'000
------------------------------- -------- ---------
Total non-current assets 77 328
Total current assets 5,958 8,544
Total non-current liabilities (3,521) -
Total current liabilities (4,475) (7,662)
Revenues 40,609 33,974
Loss (3,484) (15,437)
C. Investment in structured agreements
During the year the Group entered into two new structured
agreements (2015: three structured agreements), which include
agreements covering software licensing and services provisions with
nil initial investment cost and invested additional EUR1.4 million
in existing agreement (2015: three agreements of a total cash
investment of EUR8.9 million and additional EUR9.3 million invested
in existing agreements). These structured agreements are
individually immaterial.
Movement in structured agreements:
EUR'000
------------------------------------------------ --------
Investment in structured agreements at
1 January 2016 31,136
Investment in structured agreements in
the year 1,481
Return on investment in structured agreement (401)
Disposal of investment in Ladbrokes agreements (6,893)
Investment in structured agreements at
31 December 2016 25,323
--------
Ladbrokes software and services agreement
In 2013, the Group entered into a landmark transaction with
Ladbrokes plc ("Ladbrokes"), which includes three significant
agreements covering software licensing, marketing and advisory
services.
As part of the advisory services agreement, the Group through
its marketing division will have significant influence over the
financial and operational decision making of the Ladbrokes digital
business. The Group will receive a share of profit based on the
EBITDA performance of the Ladbrokes digital business in the
financial year ended 31 December 2017 over and above that achieved
in the financial year ended 31 December 2012, as adjusted (the
"Base EBITDA").
On 27 July 2015, the Group agreed to an early settlement of its
marketing services subject to the completion of the merger between
Ladbrokes and Coral.
On 1 November 2016, the merger was completed. The Group received
EUR44.5 million (GBP40 million) satisfied by way of the issue of
shares in Ladbrokes Coral plc. A further GBP35 million in cash is
to be received upon delivery of key operational milestones by the
Group but, in any event, within 42 months following completion of
the merger.
Upon completion the Group disposed of the investments relating
to the Ladbrokes software and services agreements. Profit on
disposal is calculated as follows:
Income from Ladbrokes
EUR'000
----------------------------------------------- --------
Ladbrokes Coral plc shares fair value
as at 1 November 2016 44,477
Present value of cash receivable (using
a 5.0% discount rate) 38,100
Cost related to the software and services
agreement (9,639)
Disposal of investment in associate (6,893)
Profit on disposal of investment of associate 66,045
--------
Impairment of investment in associate
(note 13b) (1,586)
--------
Net profit on disposal of investment of
associate 64,459
--------
NOTE 14 - AVAILABLE-FOR-SALE INVESTMENTS
2016 2015
EUR'000 EUR'000
---------------------------------- ------------------ ------------------
Investment in available-for-sale
investments at 1 January 237,100 24,219
Investment in the year (Note
13c) 44,477 209,797
Unrealised valuation movement
recognised in equity (53,868) 1,160
Foreign exchange Movements 2,569 1,924
Investment in available-for-sale
investments at 31 December 230,278 237,100
------------------ ------------------
2016 2015
EUR'000 EUR'000
-------------------------------- -------------- ----------------
Available-for-sale financial
assets include the following:
Quoted:
Equity securities - UK 225,280 226,015
Equity securities - Asia 4,998 11,085
230,278 237,100
-------------- ----------------
The fair value of quoted investments is based on published
market prices.
The maximum exposure to credit risk at the reporting date is the
carrying value of the financial assets classified as
available-for-sale.
NOTE 15 - OTHER NON-CURRENT ASSETS
2016 2015
EUR'000 EUR'000
------------------------------- -------- --------
Loans to customers 7,293 7,199
Loan to affiliate 4,382 2,825
Rent and car lease deposits 3,758 3,312
Guarantee for gaming licenses 2,000 2,000
Related parties (Note 28) 5,050 3,561
Deferred tax 2,025 -
Non-current prepayments 740 766
Other 1,613 1,167
26,861 20,830
-------- --------
NOTE 16 - TRADE RECEIVABLES
2016 2015
EUR'000 EUR'000
--------------------------- -------- --------
Customers 71,506 72,341
Related parties (Note 28) 2,238 2,291
-------- --------
73,744 74,632
-------- --------
NOTE 17 - OTHER RECEIVABLES
2016 2015
EUR'000 EUR'000
-------------------------------------- -------- --------
Prepaid expenses 17,054 14,340
VAT and other taxes 9,675 6,785
Advances to suppliers 2,141 380
Buyout of reseller agreement - 3,308
Proceeds from disposal of investment 39,865 -
(note 13c)
Related parties (Note 28) 228 -
Other receivables 5,003 2,993
73,966 27,806
-------- --------
NOTE 18 - CASH AND CASH EQUIVALENTS
2016 2015
EUR'000 EUR'000
Cash at bank 409,158 501,336
Deposits 135,685 356,562
-------- --------
544,843 857,898
-------- --------
The Group held cash balances which include monies held on behalf
of operators in respect of operators' jackpot games and poker and
casino operations and client funds with respect to CFD and client
deposits in respect of liquidity and clearing activity.
2016 2015
EUR'000 EUR'000
------------------------------ -------- --------
Funds attributed to jackpots 31,589 30,886
Security deposits 15,172 32,454
Client deposits 76,229 -
Client funds 29,863 43,761
-------- --------
152,853 107,101
-------- --------
NOTE 19 - SHAREHOLDERS' EQUITY
A. Share Capital
Share capital is comprised of no par value shares as
follows:
2016 2015
Number Number
of Shares of Shares
-------------------- ------------ ------------
Authorised* N/A N/A
Issued and paid up 317,344,603 322,624,603
* The Group has no authorised share capital but is authorised
under its memorandum and article of association to issue up to
1,000,000,000 shares of no par value.
In 2015 the Group issued 29,050,000 shares of no par value.
In 2016 the Group has cancelled 5,280,000 shares as part of
share buy back for a total consideration of EUR49,829,000.
B. Employee Benefit Trust
In 2014 the Group established an Employee Benefit Trust by
acquiring 5,517,241 shares for a total consideration of EUR48.5
million. During the year 244,416 shares (2015: 855,749) were issued
as a settlement for employee share option exerices with a cost of
EUR2.1 million (2015: EUR8.7 million), and as of 31 December 2016,
a balance of 3,035,673 (2015: 3,280,089) shares remains in the
trust with a cost of EUR25.4 million (2015: EUR27.5 million).
C. Share options exercised
During the year 258,477 (2015: 81,986) share options were
exercised. The Group cash-settled 14,061 share options during the
year (2015: nil).
D. Distribution of Dividend
In May and June 2016, the Group distributed EUR60,810,670 as a
final dividend for the year ended 31 December 2015 (18.9 EUR cents
per share).
In October 2016, the Group distributed EUR35,274,873 as an
interim dividend in respect of the period ended 30 June 2016 (11.0
EUR cents per share).
In December 2016, the Group distributed EUR149,648,301 as
special dividend (46.0 EUR cents per share).
E. Reserves
The following describes the nature and purpose of each reserve
within owner's equity:
Reserve Description and purpose
------------------- --------------------------------------------
Additional Share premium (i.e. amount subscribed
paid in capital for share capital in excess of nominal
value)
Available-for-sale Changes in fair value of available-for-sale
reserve investments (Note 14)
Employee Benefit Cost of own shares held in treasury
Trust by the trust
Put/Call options Fair value of put options as part
reserve reserve of business acquisition
Foreign exchange Gains/losses arising on retranslating
reserve the net assets of overseas operations
Convertible Amount of proceeds on issue of convertible
bond option debt relating to the equity component
reserve (i.e. option to convert the debt
into share capital)
Retained earnings Cumulative net gains and losses
recognised in the consolidated statement
of comprehensive income
NOTE 20 - LOANS AND BORROWINGS
The loan balance as of 31 December 2016 is EUR200 million (2015:
EUR200 million). The loan is a revolving credit facility available
until July 2018. Interest payable on the loan is based on a margin
on Euro Libor rates.
NOTE 21 - CONVERTIBLE BONDS
On 12 November 2014 the Group issued EUR297.0 million of senior,
unsecured convertible bonds due 2019 and convertible into fully
paid Ordinary Shares of Playtech plc (the "Bonds"). The net
proceeds of issuing the Bonds, after deducting commissions and
other direct costs of issue, totaled EUR291.1 million.
The Bonds were issued at par and will be redeemed (if not
converted before) on 19 November 2019 at their principal amount.
The Bonds bear interest at 0.5% per annum, payable annually in
arrears on 19 November.
Upon conversion, Bondholders are entitled to receive Ordinary
Shares at the conversion price of EUR10.1325 per Ordinary Share,
subject to adjustment in respect of (i) any dividend or
distribution by the Company, (ii) a change of control and (iii)
customary anti-dilution adjustments for, inter alia, share
consolidations, share splits and rights issues.
The fair value of the liability component, included in
non-current borrowings, at inception was calculated using a market
interest rate for an equivalent instrument without conversion
option of 4%.
The fair value of the liability component, which is
immateriality different to the amortised cost, of the Bonds
(including accrued interest) at 31 December 2016 amounted to
EUR266.2 million (2015: EUR256.4 million), which was calculated
using cash flow projections discounted at 4%.
The fair value at inception of the equity component of the bonds
at 31 December 2016 was EUR45.4 million (2015: EUR45.4
million).
NOTE 22 -CONTINGENT CONSIDERATION AND REDEMPTION LIABILITIES
2016 2015
EUR'000 EUR'000
--------------------------------------------------------------------- ------------------ ------------------
Non-Current contingent consideration consists:
Acquisition of Markets Limited (Note 27b) 139,133 138,196
Acquisition of Quickspin AB (Note 26a) 24,143 -
Acquisition of Patelle Limited (Note 26b) 4,792 -
Other acquisitions (Note 27c) 1,645 3,151
169,713 141,347
------------------ ------------------
Non-Current redemption liability consists:
Acquisition of Consolidated Financial Holdings A/S (Note 26d) 17,102 -
Acquisition of Patelle Limited (Note 26b) 16,593 -
Acquisition of ECM Systems Holdings Limited (Note 26c) 1,142 -
------------------ ------------------
34,837 -
------------------ ------------------
Total Non-Current contingent consideration and redemption liability 204,550 141,347
------------------ ------------------
Current contingent consideration consists:
Acquisition of ECM Systems Holdings Limited (Note 26c) 3,061 -
Acquisition of Consolidated Financial Holdings A/S (Note 26d) 336 -
Acquisition of Yoyo Games Limited (Note 27a) - 2,036
Other acquisitions (Note 27c) 1,180 2,455
------------------ ------------------
4,577 4,491
------------------ ------------------
NOTE 23 - TRADE PAYABLES
2016 2015
EUR'000 EUR'000
--------------------------- -------- --------
Suppliers 23,235 14,907
Customer liabilities 3,932 1,292
Related parties (Note 28) 573 200
Other 431 1,012
-------- --------
28,171 17,411
-------- --------
NOTE 24 - DEFERRED TAX LIABILITY
The deferred tax liability is due to temporary differences on
the acquisition of certain businesses.
The movement on the deferred tax liability is as shown
below:
2016 2015
EUR'000 EUR'000
------------------------------------ ------------ ------------
At the beginning of the year 14,049 4,904
Arising on the acquisitions during
the year (Note 26) 29,743 11,258
Reversal of temporary differences,
recognised in the consolidated
statement of comprehensive income
(Note 8) (3,349) (2,113)
40,443 14,049
------------ ------------
NOTE 25 - OTHER PAYABLES
2016 2015
EUR'000 EUR'000
------------------------------ -------- --------
Payroll and related expenses 37,626 35,147
Accrued expenses 16,328 15,955
Related parties (Note 28) 1,309 353
Other payables 3,173 4,600
58,436 56,055
-------- --------
NOTE 26 - ACQUISITIONS DURING THE YEAR
A. Acquisition of Quickspin AB
On 24 May 2016, the Group acquired 100% of the shares of
Quickspin AB ("Quickspin"). Quickspin is a Swedish games studio
that develops and supplies high quality video slots to operators,
both in online real money gambling as well as in the social gaming
market.
The Group paid total cash consideration of EUR24.5 million (SEK
228.4 million) and additional consideration capped at EUR26.0
million (SEK 242.9 million) in cash will be payable subject to
achieving target EBITDA.
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill, are as follows:
Fair value on acquisition
EUR'000
------------------------------- ---------------------------
Property, plant and equipment 123
Intangible assets 26,996
Trade and other receivables 1,249
Cash and cash equivalent 535
Trade payables (935)
Deferred tax liability (6,074)
Net identified assets 21,894
---------------------------
Goodwill 26,802
Fair value of consideration 48,696
---------------------------
EUR'000
------------------------
Cash consideration 24,461
Non-current contingent consideration 26,019
Finance cost arising on discounting of contingent consideration (1,784)
------------------------
Fair value of consideration 48,696
------------------------
Cash purchased (535)
Net cash payable 48,161
------------------------
Adjustments to fair value include the following:
Amount Amortisation
EUR'000 %
----------------------- --------------- -------------
Customer relationship 18,645 6.7
IP Technology 5,499 20
Brand 2,852 16.7
The main factor leading to the recognition of goodwill is the
time to market benefit, large pipeline of operators, revenue stream
from new games and mew licensees and assembled work force with vast
experience in the virtual slot machines games. In accordance with
IAS36, the Group will regularly monitor the carrying value of its
interest in Quickspin.
The key assumptions used by management to determine the value in
use of the Customer relationship and Brand within Quickspin are as
follows:
-- The relief from royalty approach
-- The royalty rate was based on a third party
market participant assumption for the use
of the Customer relationship and Brand.
-- The discount rate assumed is equivalent to
the WACC for the Customer relationship and
Brand.
-- The growth rates and attrition rates were
based on market analysis.
The key assumptions used by management to
determine the value in use of the IP Technology
within Quickspin are as follows:
-- The with and without model, taking into account
the time and additional expenses required
to recreate the IP Technology and the level
of lost cash flows in the period.
-- The discount rate assumed is equivalent to
the WACC for the IP Technology.
-- The growth rates and attrition rates were
based on market analysis.
Management has not disclosed Quickspin contribution to the Group
profit since the acquisition nor has the impact the acquisition
would have had on the Group's revenue and profits if it had
occurred on 1 January 2016 been disclosed, because the amounts are
not material.
B. Acquisition of Patelle Limited
On 13 July 2016, the Group acquired 90% of the shares of Patelle
Limited. Patelle owns 100% of Best Gaming Technology GmbH ("BGT").
BGT is an Austrian leading provider of sports betting software and
solutions for gaming and sports betting operators. The remaining
10% of the shares are held by the founder and CEO of BGT.
The Group paid total cash consideration of EUR138.5 million.
The Group has a call option to purchase the remaining 10% of BGT
at a valuation of 6 times 2019 EBITDA capped at EUR55.0 million.
The founder and CEO of BGT have certain put options over his 10%
holding at the same valuation. The fair value of this option was
recognised as non current liability and reflected in the Groups'
statement of changes in equity. The fair value as of 31 December
2016 was EUR16.6 million.
The founder and CEO of BGT may also be entitled to an additional
payment of EUR5.0 million subject to the achievement of certain
operational milestones.
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill, are as follows:
Fair value on acquisition
EUR'000
------------------------------- ---------------------------
Property, plant and equipment 11,832
Intangible assets 64,815
Trade and other receivables 11,150
Cash and cash equivalent 5,698
Trade and other payables (16,331)
Deferred tax liability (16,141)
Non-controlling interest (6,102)
Net identified assets 54,921
---------------------------
Goodwill 88,283
Fair value of consideration 143,204
---------------------------
EUR'000
----------------------
Cash consideration 138,490
Non-current contingent consideration 5,000
Finance cost arising on discounting of contingent consideration (286)
----------------------
Fair value of consideration 143,204
----------------------
Cash purchased (5,698)
Net cash payable 137,506
----------------------
Adjustments to fair value include the following:
Amount Amortisation
EUR'000 %
----------------------- ------------- -------------
Customer relationship 39,503 6.7
IP Technology 16,883 20
Brand 8,177 10
Other 252 20
The main factor leading to the recognition of goodwill is the
time to market benefit, revenue stream from newly developed
terminals and assembled work force with vast experience in Sports
Betting Terminals ("SSBT") sector. In accordance with IAS36, the
Group will regularly monitor the carrying value of its interest in
BGT.
The key assumptions used by management to determine the value in
use of the Customer relationship, IP Technology and Brand within
BGT are as follows:
-- The relief from royalty approach.
-- The royalty rate was based on a third party
market participant assumption for the use
of the Customer relationship and Brand.
-- The discount rate assumed is equivalent to
the WACC for the Customer relationship, IP
technology and Brand.
-- The growth rates and attrition rates were
based on market analysis.
Since the acquisition date, BGT has contributed EUR25.0 million
to the Group revenue, EUR8.9 million to the adjusted EBITDA and
EUR5.0 million to the adjusted net profit. The combined Group
revenue as if BGT acquisition had occurred on 1 January 2016 would
have been higher by EUR29.0 million, the combined Group adjusted
EBITDA and adjusted net profit would have been higher by EUR10.5
million and EUR4.0 million.
C. Acquisition of ECM Systems Holdings Ltd
On 20 October 2016, the Group acquired 90% of the shares of ECM
Systems Holdings Limited ("ECM"). ECM is a bingo software and
hardware solutions provider to the UK retail bingo market. The
remaining 10% of the shares are held by the founder and CEO of
ECM.
The Group paid total cash consideration of EUR25.0 million
(GBP22.4 million). The company will pay EUR3.1 million (GBP2.7
million) as additional working capital adjustment in the beginning
of 2017.
The Group has a call option to purchase the remaining 10% of ECM
at a valuation of 6 times 2019 EBITDA capped at GBP1.1 million
(EUR1.2 million). The CEO of ECM have certain put options over his
10% holding at the same valuation. The fair value of this option
was recognised as non current liability and reflected in the
Groups' statement of changes in equity. The fair value as of 31
December 2016 was EUR1.1 million. The Group paid to an escrow
account the fair value of the option.
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill, are as follows:
Fair value on acquisition
EUR'000
------------------------------- ---------------------------
Property, plant and equipment 2,127
Intangible assets 8,713
Trade and other receivables 1,354
Cash and cash equivalent 12,133
Trade and other payables (1,852)
Deferred tax liability (1,742)
Minority (2,071)
Net identified assets 18,662
---------------------------
Goodwill 9,437
Fair value of consideration 28,099
---------------------------
EUR'000
-----------------------
Cash consideration 25,038
Current deferred consideration 3,061
-----------------------
Fair value of consideration 28,099
-----------------------
Cash purchased (12,133)
Net cash payable 15,966
-----------------------
Adjustments to fair value include the following:
Amount Amortisation
EUR'000 %
----------------------- -------- -------------
Customer relationship 5,290 10
IP Technology 2,273 12.5
Brand 1,150 10
The main factor leading to the recognition of goodwill is the
substantial market presence and business reputation. In accordance
with IAS36, the Group will regularly monitor the carrying value of
its interest in ECM.
The key assumptions used by management to determine the value in
use of the Customer relationship, IP Technology and Brand within
ECM are as follows:
-- The relief from royalty approach.
-- The royalty rate was based on a third party
market participant assumption for the use
of the Customer relationship and Brand.
-- The discount rate assumed is equivalent to
the WACC for the Customer relationship, IP
technology and Brand.
-- The growth rates and attrition rates were
based on market analysis.
Management has not disclosed ECM contribution to the Group
profit since the acquisition nor has the impact the acquisition
would have had on the Group's revenue and profits if it had
occurred on 1 January 2016 been disclosed, because the amounts are
not material.
D. Acquisition of Consolidated Financial Holdings A/S
On 30 November 2016, the Group acquired 70% of the shares of
Consolidated Financial Holdings A/S ("CFH"). CFH is a technology
company with products including a Straight Through Processing
brokerage which provides retail brokers with multi-asset execution,
prime brokerage services, liquidity and complementary risk
management tools. The remaining 30% of the shares are held by the
founder and CEO of ECM.
The Group paid total cash consideration of EUR38.6 million
($41.0 million). The company will pay EUR0.3 million ($0.3 million)
as additional working capital adjustment in the beginning of
2017.
The Group has a call option to purchase the remaining 30% of CFH
at a valuation of 6 times 2018 EBITDA capped at a total
consideration of $76.6 million less the initial consideration. The
founder and CEO of CFH have certain put options over his 30%
holding at the same valuation. The fair value of this option was
recognised as a non current liability and reflected in the Groups'
statement of changes in equity. The fair value as of 31 December
2016 was EUR16.9 million.
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill, are as follows:
Fair value on acquisition
EUR'000
------------------------------- ---------------------------
Property, plant and equipment 214
Intangible assets 26,446
Trade and other receivables 3,338
Cash and cash equivalent 80,463
Trade and other payables (6,364)
Client funds (76,952)
Deferred tax liability (5,246)
Non controlling interest (6,570)
Net identified assets 15,329
---------------------------
Goodwill 23,927
Fair value of consideration 39,256
---------------------------
EUR'000
-----------------------
Cash consideration 38,927
Current contingent consideration 329
-----------------------
Fair value of consideration 39,256
-----------------------
Cash purchased (80,463)
Net cash payable (41,207)
-----------------------
Adjustments to fair value include the following:
Amount Amortisation
EUR'000 %
----------------------- ---------------- -------------
Customer relationship 14,322 10
IP Technology 11,019 10-14.3
Brand 1,105 10
The main factor leading to the recognition of goodwill is the
substantial market presence and business reputation. In accordance
with IAS36, the Group will regularly monitor the carrying value of
its interest in CFH.
The key assumptions used by management to determine the value in
use of the Customer relationship, IP Technology and Brand within
CFH are as follows:
-- The relief from royalty approach.
-- The royalty rate was based on a third party
market participant assumption for the use
of the Customer relationship and Brand.
-- The discount rate assumed is equivalent to
the WACC for the Customer relationship, IP
technology and Brand.
-- The growth rates and attrition rates were
based on market analysis.
Management has not disclosed CFH contribution to the Group
profit since the acquisition nor has the impact the acquisition
would have had on the Group's revenue and profits if it had
occurred on 1 January 2016 been disclosed, because the amounts are
not material.
E. Other acquisitions
During the period, the Group acquired the shares of various
companies for a total consideration of EUR13.1 million. One of
these subsidiaries was acquired in steps, with previous
consideration of EUR2.4 million paid to acquire the previously
recognized associate.
Details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill, are as follows:
Fair value on acquisition
EUR000
----------------------------------- --------------------------
Property, plant and equipment 1,189
Intangible assets 4,387
Trade and other receivables 683
Cash and cash equivalent 1,415
Trade and other payables (4,989)
Deferred tax liability (94)
Net identified assets 2,591
--------------------------
Goodwill 10,543
Total fair value of consideration 13,134
--------------------------
EUR'000
----------------------------
Cash consideration 9,545
Conversion of previously recognized associate 3,589
Fair value of consideration 13,134
----------------------------
Cash purchased (1,415)
Net cash payable 11,719
----------------------------
Adjustments to fair value include the following:
Amount Amortisation
EUR'000 %
------------------------------------- ------------- -------------
Customer relationship 1,501 6.7-10
IP Technology 2,886 20-33.33
The main factor leading to the recognition of goodwill is the
unique workforce and time to market benefit. In accordance with
IAS36, the Group will regularly monitor the carrying value of its
interest in these acquisitions.
The key assumptions used by management to determine the value in
use of the IP Technology within these acquisitions are as
follows:
-- The income approach, in particular, the multi
period excess earnings method.
-- The discount rate assumed is equivalent to
the WACC for the IP Technology.
-- The growth rates and attrition rates were
based on market analysis.
Management has not disclosed other acquisitions contribution to
the Group profit since these acquisitions nor has the impact the
acquisition would have had on the Group's revenue and profits if it
had occurred on 1 January 2016 been disclosed, because the amounts
are not material.
NOTE 27 - ACQUISITIONS IN PRIOR YEAR
A. Acquisition of Yoyo Games Limited
On 13 February 2015, the Group acquired 100% of the shares of
Yoyo Games Limited ("Yoyo"). Yoyo is the home of Game Maker:
Studio(TM) ("GMS"), a mobile driven cross-platform casual game
development technology that enables developers to create games
using a single programming code and then publish them to run
natively across most common platforms.
The Group paid total cash consideration of EUR14.4 million
($16.4 million) and additional consideration capped at EUR2.2
million ($2.5 million), of which EUR1.8 million was paid in current
year.
B. Acquisition of Markets Limited (previously named TradeFX
Limited)
On 8 May 2015, the Group acquired 95.05% of the shares of
Markets Limited ("Markets"), 91.1% on fully diluted basis. The
sellers included a company related to the significant shareholder,
Telesphere Services Limited.
Markets is an online CFDs broker and trading platform provider,
operates a platform for CFDs trading across multiple channels. In
addition, Markets provides a turnkey offering, including a white
label solution, for B2B clients, in return for a revenue share.
The Group paid total cash consideration of EUR208 million, and
additional consideration capped at EUR250 million in cash will be
payable subject to achieving target EBITDA (note 22).
C. Other acquisitions
During the period the Group acquired 100% of the shares of
various companies for a total initial consideration of EUR3.5
million and additional consideration capped at EUR4.9 million in
cash will be payable subject to the achievement of certain
operational targets.
NOTE 28 - RELATED PARTIES AND SHAREHOLDERS
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party's making of financial or operational
decisions, or if both parties are controlled by the same third
party. Also, a party is considered to be related if a member of the
key management personnel has the ability to control the other
party.
Skywind Holdings Limited ("Skywind"), SafeCharge Limited,
Crossrider Technologies Ltd ("Crossrider"), Royalfield Limited,
Easydock Investments Ltd. ("Easydock"), Selfmade Holdings, Glispa
GmbH, Anise Development Limited and Anise Residential Limited
(together "Anise") and Telesphere Services Ltd (note 27b) are
related by virtue of a common significant shareholder.
Joint venture and the structured agreements are associates of
the Group by virtue of the Group's significant influence over those
arrangements.
The following transactions arose with related parties:
2016 2015
EUR'000 EUR'000
----------------------------------------- --------------- ----------------
Revenue including revenue from
associates
Skywind 1,683 1,562
Structured agreements and associates 12,904 35,531
--------------- ----------------
Share of profit in joint venture 146 229
Share of loss in associates (693) (5,856)
--------------- ----------------
Operating expenses/(credit)
SafeCharge Limited 6,150 6,674
Crossrider 2,615 2,472
Structured agreements 1,309 1,910
Anise 1,037 1,174
Skywind, net of capiltalised
cost 82 3,438
Glispa GmbH 28 6
Selfmade Holdings 11 52
Royalfield Limited 4 (272)
Easydock 1 358
PT Games - 220
--------------- ----------------
Interest payable
Niceidea - 46
--------------- ----------------
The following are year-end balances:
Intangible assets
Skywind 4,128 1,037
--------------- ----------------
Cash and cash equivalent
Safecharge Limited 2,968 5,341
--------------- ----------------
Niceidea - 1,596
Structured agreements and associates 5,050 1,965
--------------- ----------------
Total non-current related party
receivables 5,050 3,561
--------------- ----------------
Structured agreements and associates 1,971 1,435
Skywind 267 582
Crossrider 228 266
PT Games Limited - 8
Total current related party receivables 2,466 2,291
--------------- ----------------
SafeCharge Limited 200 200
Structured agreements 1,682 353
Total related party payables 1,882 553
--------------- ----------------
Following Hilary Stewart-Jones stepping down from the board on 1
January 2016, Niceidea and PT Games are no longer related
parties.
On 31 December 2016, Brickington held 21.93% (31 December 2015:
33.61%) of Playtech plc shares.
Mr. Teddy Sagi, the ultimate beneficiary of a trust that owns
Brickington, provides advisory services to the Group for a total
annual consideration of EUR1. Brickington ceased to be a
controlling shareholder as defined under the listing rules when its
holding fell below 25%. The relationship agreement remains in
place, all transactions with the controlling shareholder or their
associates were made at an arms length.
The details of key management compensation (being the
remuneration of the directors) are set out in Note 6.
NOTE 29 - SUBSIDIARIES
Details of the Group's principal subsidiaries as at the end of
the year are set out below:
Name Country Proportion Nature of business
of incorporation of voting
rights and
ordinary
share capital
held
---------------------- ------------------ --------------- --------------------------
Playtech Software British 100% Main trading company
Limited Virgin of the Group, owns
Islands the intellectual
property rights
and licenses the
software to customers.
OU Playtech Estonia 100% Designs, develops
(Estonia) and manufactures
online software
Techplay Marketing Israel 100% Marketing and advertising
Limited
Video B Holding British 100% Trading company
Limited Virgin for the Videobet
Islands software, owns
the intellectual
property rights
of Videobet and
licenses it to
customers.
OU Videobet Estonia 100% Develops software
for fixed odds
betting terminals
and casino machines
(as opposed to
online software)
Playtech Bulgaria Bulgaria 100% Designs, develops
and manufactures
online software
PTVB Management Isle of 100% Management
Limited Man
Evermore Trading British 100% Holding company
Limited Virgin
Islands
Playtech Services Cyprus 100% Activates the ipoker
(Cyprus) Limited Network in regulated
markets. Owns the
intellectual property
of GTS, Ash and
Geneity businesses
VB (Video) Cyprus 100% Trading company
Cyprus Limited for the Videobet
product to Romanian
companies
Techplay S.A. Israel 100% Develops online
Software Limited software
Technology Isle of Owns the intellectual
Trading IOM Man 100% property rights
Limited of Virtue Fusion
business
Gaming Technology UK 100% Holding company
Solutions of VS Gaming and
Limited VS Technology
VS Gaming UK 100% Develops software
Limited and casino games
VS Technology UK 100% Develops EdGE platform
Limited
Virtue Fusion Alderney 100% Online bingo and
(Alderney) casino software
Limited provider
Virtue Fusion UK 100% Chat moderation
CM Limited services provider
to end users of
VF licensees
Playtech Software Alderney 100% To hold the company's
(Alderney) Alderney Gaming
Limited license
Intelligent UK 100% Casino management
Gaming Systems systems to land
Limited based businesses
VF 2011 Limited Alderney 100% Holds license in
Alderney for online
gaming
PT Turnkey British 100% Holding company
Services Limited Virgin of the Turnkey
Islands Services group
PT Turnkey Cyprus 100% Turnkey services
EU Services for EU online gaming
Limited operators
PT Entertenimiento Bulgaria 100% Poker & Bingo network
Online EAD for Spain
PT Marketing British 100% Marketing services
Services Limited Virgin to online gaming
Islands operators
PT Operational British 100% Operational & hosting
Services Limited Virgin services to online
Islands gaming operators
Tech Hosting Alderney 100% Alderney Hosting
Limited services
Paragon International British 100% English Customer
Customer Care Virgin support, chat,
Limited Island fraud, finance,
& branch dedicated employees
office services to parent
in the company
Philippines
CSMS Limited Bulgaria 100% Consulting and
online technical
support, data mining
processing and
advertising services
to parent company
TCSP Limited Serbia 100% Operational services
for Serbia
S-Tech Limited British 100% Live games services
Virgin to Asia
Islands
& branch
office
in the
Philippines
PT Advisory British 100% Holds PT processing
Services Limited Virgin Advisory Ltd
Islands
PT Processing British 100% Advisory services
Advisory Limited Virgin for processing
Islands & cashier to online
gaming operators
PT Processing Cyprus 100% Advisory services
EU Advisory for processing
Limited & cashier for EU
online gaming operators
PT Network British 100% Manages the ipoker
Management Virgin network
Limited Islands
Playtech Mobile Cyprus 100% Holds the IP of
(Cyprus) Limited Mobenga AB
Playtech Holding Sweden 100% Holding company
Sweden AB of Mobenga AB
Limited
Mobenga AB Sweden 100% Mobile sportsbook
Limited betting platform
developer
Ash Gaming UK 100% Develops interactive
Limited gambling and betting
games
Geneity Limited UK 100% Develops Sportsbook
and Lottery software
Factime Limited Cyprus 100% Holding company
of Juego
Juego Online Bulgaria 100% Gaming operator.
EAD Holds a license
in Spain.
PlayLot Limited British 100% Distributing lottery
Virgin software
Islands
PokerStrategy Gibraltar 100% Operates poker
Ltd. community busiess
Videobet Interactive Sweden 100% Trading company
Sweden AB for the Aristocrat
Lotteries VLT's
V.B. Video Italy 100% Trading company
(Italia) S.r.l. for the Aristocrat
Lotteries VLT's
PT Entertainment Antigua 100% Holding gaming
Services LTD license in the
UK
Markets Limited British 95.256% Owns the intellectual
Virgin property rights
Islands and marketing and
technology contracts
of the financial
division
Safecap Limited Cyprus 95.256% Primary trading
company of the
financial division.
Licensed investment
firm and regulated
by Cysec
TradeFXIL Israel 95.256% Financial division
limited sales, client retention,
R&D and marketing
ICCS BG Bulgaria 95.256% Financial division
back office customer
support
Stronglogic Cyprus 95.256% Maintains the financial
Services Limited division marketing
function for EU
operations
Yoyo Games UK 100% Casual game development
Limited technology
Quickspin Sweden 70% Owns video slots
AB intellectual property
Best Gaming Austria 90% Owns sports betting
Technology intellectual property
GmbH solutions and primary
trading company
for sports betting
ECM Systems UK 90% Owns bingo software
Holdings Ltd intellectual property
and bingo hardware
Consolidated Denmark 70% Owns the intellectual
Financial property which
Holdings AS provides brokerage
services, liquidity
and risk management
tool
CFH Clearing UK 70% Primary trading
Limited company of CFH
Group
NOTE 30 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group is exposed to a variety of financial risks, which
results from its financing, operating and investing activities. The
objective of financial risk management is to contain, where
appropriate, exposures in these financial risks to limit any
negative impact on the Group's financial performance and position.
The Group's financial instruments are its cash, available-for-sale
financial assets, trade receivables, loan receivables, bank
borrowings, accounts payable and accrued expenses. The main purpose
of these financial instruments is to raise finance for the Group's
operation. The Group actively measures, monitors and manages its
financial risk exposures by various functions pursuant to the
segregation of duties and principals. The risks arising from the
Group's financial instruments are credit risk and market price
risk, which include interest rate risk, currency risk and equity
price risk. The risk management policies employed by the Group to
manage these risks are discussed below.
A. Market risk
Market risk changes in line with fluctuations in market prices,
such as foreign exchange rates, interest rates, equities and
commodities prices. These market prices affect the Group's income
or the value of its holding in financial instruments.
Exposure to market risk
In the financial trading division, the Group has exposure to
market risk to the extent that it has open positions. The Group's
exposure to market risk at any point in time depends primarily on
short-term market conditions and client activities during the
trading day. The exposure at each reporting date is therefore not
considered representative of the market risk exposure faced by the
Group over the year.
The Group's exposure to market risk is mainly determined by the
clients' open position. The most significant market risk faced by
the Group on the CFD products it offers changes in line with market
changes and the volume of clients' transactions.
Interest rate risk
Interest rate risk is the risk that the value of financial
instruments will fluctuate due to changes in market interest rates.
The Group's income and operating cash flows are substantially
independent of changes in market interest changes. The management
monitors interest rate fluctuations on a continuous basis and acts
accordingly.
Where the Group has generated a significant amount of cash, it
will invest in higher earning interest deposit accounts. These
deposit accounts are short term and the Group is not unduly exposed
to market interest rate fluctuations.
During the year the group advanced loans to affiliates and
customers for a total amount of EUR5.5 million (2015: EUR2.3
million). The average interest on the loans is 5%.
A 1% change in deposit interest rates would impact on the profit
before tax by EUR55 thousands.
B. Credit risk
Credit risk arises when a failure by counterparties to discharge
their obligations could reduce the amount of future cash inflows
from financial assets on hand at the balance sheet date.
The Group closely monitors the activities of its counterparties
and controls the access to its intellectual property which enables
it to ensure the prompt collection of customers' balances.
The Group's main financial assets are cash and cash equivalents
as well as trade and other receivables and represent the Group's
maximum exposure to credit risk in connection with its financial
assets. Trade and other receivables are carried on the balance
sheet net of bad debt provisions estimated by the Directors based
on prior year experience and an evaluation of prevailing economic
circumstances.
Wherever possible and commercially practical the Group invests
cash with major financial institutions that have a rating of at
least A- as defined by Standard & Poors. While the majority of
money is held in line with the above policy, a small amount is held
at various institutions with no rating. The Group also holds small
deposits in Cypriot and Spanish financial institutions, as required
by the respective gaming regulators that have a rating below A-.
The Group holds approximately 4% of its funds (2015: 2%) in
financial institutions below A- rate and 2% in payment methods with
no rating (2015:3%).
Total Financial Financial
institutions institutions
with A- below A-
and above rating
rating and no
rating
EUR'000 EUR'000 EUR'000
--------------------- -------- -------------- --------------
At 31 December 2016 544,843 476,904 67,939
At 31 December 2015 857,898 813,164 44,734
The Group has no credit risk to clients since all accounts have
an automatic margin call, which relates to a guaranteed stop such
that the client's maximum loss is covered by the deposit. The Group
has risk management and monitoring processes for clients' accounts
and this is achieved via margin calling and close-out process.
The ageing of trade receivables that are past due but not
impaired can be analysed as follows:
Total Not past 1-2 months More than
due overdue 2 months
past due
EUR'000 EUR'000 EUR'000 EUR'000
---------------- -------- --------- ----------- ----------
At 31 December
2016 73,744 55,928 5,325 12,491
At 31 December
2015 74,632 47,945 12,849 13,838
The above balances relate to customers with no default history
and management estimate full recoverability given the provision
below.
A provision for doubtful debtors is included within trade
receivables that can be reconciled as follows:
2016 2015
EUR'000 EUR'000
------------------------------------- -------- --------
Provision at the beginning of
the year 86 908
Charged to income statement 795 -
Provision acquired through business 404 -
combination
Utilised (153) (822)
-------- --------
Provision at end of year 1,132 86
-------- --------
Related party receivables included in Note 16 are not past
due.
C. Currency risk
Currency risk is the risk that the value of financial
instruments will fluctuate due to changes in foreign exchange
rates.
Foreign exchange risk arises because the Group has operations
located in various parts of the world. However, the functional
currency of those operations is the same as the Group's primary
functional currency (Euro) and the Group is not substantially
exposed to fluctuations in exchange rates in respect of assets held
overseas.
Foreign exchange risk also arises when Group operations are
entered into, and when the Group holds cash balances, in currencies
denominated in a currency other than the functional currency.
The Group's policy is not to enter into any currency hedging
transactions.
D. Equity price risk
The Group's balance sheet is exposed to market risk by way of
holding some investments in other companies on a short term basis
(Note 14). Variations in market value over the life of these
investments have or will have an impact on the balance sheet and
the income statement.
The directors believe that the exposure to market price risk is
acceptable in the Group's circumstances.
The Group's balance sheet at 31 December 2016 includes
available-for-sale investments with a value of EUR230.3 million
(2015: EUR237.1 million) which are subject to fluctuations in the
underlying share price.
A change of 1% in shares price will have an impact of EUR2.3
million on the consolidated statement of comprehensive income and
the fair value of the available for sale investments will change by
the same amount.
E. Capital disclosures
The Group seeks to maintain a capital structure which enables it
to continue as a going concern and which supports its business
strategy. The Group's capital is provided by equity and debt
funding. The Group manages its capital structure through cash flow
from operations, returns to shareholders primarily in the form of
dividends and the raising or repayment of debt.
F. Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the financial charges on its debt instruments.
Financial division liquidity risk
Positions can be closed at any time by clients and can also be
closed by the Group, in accordance with the Group's margining
rules. If after closing a position a client is in surplus, then the
amount owing is repayable on demand by the Group. When client
positions are closed, any corresponding positions relating to the
hedged position (if applicable) are closed with brokers.
Liquidity risk arises if the Group encounters difficulty in
meeting obligations which arise following profitable positions
being closed by clients. This risk is managed through the Group
holding client funds in separately segregated accounts whereby cash
is transferred to or from the segregated accounts on a daily basis
to ensure that no material mismatch arises between the aggregate of
client deposits and the fair value of open positions, and
segregated cash. Through this risk management process, the Group
considers liquidity risk to be low.
2016 2015
EUR'000 EUR'000
Client deposits 46,581 64,875
Open positions (16,897) (21,114)
--------- ---------
Client funds 29,864 43,761
CFH trades on a matched principal basis and financial
instruments are used to hedge all client positions. The management
of market risk in respect of matching of derivatives is through
automated tools, together with active monitoring and management by
senior personnel under the supervision of its directors. CFH's
liquidity obligations are monitored daily and it is adequately
capitalised with a steady revenue stream to meet its day to day
obligations. CFH client deposits balance as at 31 December 2016 was
EUR76.2 million.
The following are the contractual maturities (representing
undiscounted contractual cash flows) of the Group's financial
liabilities:
Total Within 1-2 years 2-5 years
1 year
EUR'000 EUR'000 EUR'000 EUR'000
-------------------------- -------- -------- ---------- ----------
2016
Trade payables 28,171 28,171 - -
Other accounts
payable 58,436 58,436 - -
Loans and borrowings 200,000 - 200,000 -
Progressive and
other operators'
jackpots 46,759 46,759 - -
Client funds 106,092 106,092 - -
Contingent consideration
and redemption
liability 209,127 4,577 204,550 -
Other non-current
liabilities 1,627 - - 1,627
2015
Trade payables 17,411 17,411 - -
Other accounts
payable 56,055 56,055 - -
Loans and borrowings 200,000 - - 200,000
Progressive and
other operators'
jackpots 63,340 63,340 - -
Client funds 43,761 43,761 - -
Contingent consideration 145,838 4,491 141,347 -
Other non-current
liabilities 1,175 - - 1,175
G. Total financial assets and liabilities
The fair value together with the carrying amount of the
financial assets and liabilities shown in the balance sheet are as
follows:
2016 2016 2015 2015
EUR'000 EUR'000 EUR'000 EUR'000
Fair Value Carrying Fair Value Carrying
amount Amount
-------------------------- ------------- --------- ------------- ---------
Cash and cash equivalent 544,843 544,843 857,898 857,898
Available-for-sale
investments 230,278 230,278 237,100 237,100
Other assets 174,571 174,571 123,268 123,268
Deferred and contingent
consideration and
redemption liability 209,127 209,127 145,838 145,838
Convertible bonds 266,230 266,230 256,429 256,429
Loans and borrowings 200,000 200,000 200,000 200,000
Other liabilities 148,319 148,319 102,190 102,190
Available for sale investments are measured at fair value using
level 1. Refer to Note 14 for further detail. These are the Group's
only financial assets and liabilities which are measured at fair
value.
NOTE 31 - CONTINGENT LIABILITIES
As part of the Board's ongoing regulatory compliance process,
the Board continues to monitor legal and regulatory developments
and their potential impact on the Group.
Management is not aware of any contingencies that may have a
significant impact on the financial position of the Group.
NOTE 32 - OPERATING LEASE COMMITMENT
The Group has a variety of leased properties. The terms of
property leases vary from country to country, although they tend to
be tenant repairing with rent reviews every 2 to 5 years and many
have break clauses. Total operating lease cost in the year was
EUR14.7 million (2015: EUR13.8 million).
The total future value of minimum lease payments is due as
follows:
2016 2015
EUR'000 EUR'000
----------------------------------- -------- --------
Not later than one year 15,257 15,846
Later than one year and not later
than five years 38,470 44,001
Later than five years 1,249 8,370
54,976 68,217
-------- --------
NOTE 33 - POST BALANCE SHEET EVENTS
Acquisition of Eyecon Pty. Ltd
On 7 February 2017, the Group acquired 100% of the shares of
Eyecon Pty. Ltd ("Eyecon"), a specialist supplier of online gaming
slots software.
The Group paid in cash GBP25.0 million and additional
consideration of up to GBP25.0 million, is payable in cash subject
to achieving target EBITDA.
As of the approval date of the financial statements by the board
and due to the proximity to the reporting date, the Group had not
completed the valuation of the fair value of the intangible assets
and liabilities acquired and accordingly these disclosures are not
provided in the financial statement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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